Common Cents: Money Saving Tip #6

Review prior tax returns to see if there is extra money you could be putting to good use during the year rather than paying it in and then receiving it back as a refund. One change I made that helped bump up my income was increasing the number of exemptions I claimed on my Federal W-4. When I first starting working I was taught to claim zero exemptions and always got get a sizeable refund each spring. I started claiming one exemption and began paying slightly less federal income tax each pay period. I will still get a small refund at the end of the year; it just won’t be a big windfall like before. I don’t recommend doing this though if you don’t have the discipline to put your “extra” money toward paying down your debt. Of course, I also don’t recommend going crazy and claiming ten exemptions. You don’t want to have to scramble in April to come up with hundreds or thousands of dollars to pay your tax liability. The IRS has an online calculator (see link below) you can use to find out roughly how many exemptions you should be claiming on your W-4. Be sure to have your most recent paystub handy if you go to the link. I have also included a link to the 2012 Federal W-4. Box #5 is where you list the number of exemptions you want to claim. The higher the number of exemptions claimed, the lower the federal tax that will be withheld from your paychecks.

Common Cents