My lease is up at the end of August and am considering moving somewhere month to month until I look at a condo or house.
My situation does not put me home a lot so I am leaning towards a condo as even tho there isn’t the significant increase in value unless a major change in the area happens, its a stable investment that I am putting money into.
When I was discussing costs and such with people, they say that right now, I claim 0 in my tax form but if I owned a house, I can claim 8 and it will provide me the extra income and reduce the width holding for owning a house/property.
Is this legit and a good scale to use to plan a future purchase? This would be my first property and I would live there so just looking for a goal of amount to save and have to put down while also making sure that I keep money in an account for the beginning costs to purchase one.
Claiming 8 will basically mean that you’ll pay the bare minimum taxes from your pay check, resulting in more money in your pocket. However, at the end of the year, you’re just going to owe that money back to the government. They don’t care what you claim on your w4, all they care about is getting their money at the end of the year. Either pay now or pay later, but either way make sure you can pay your taxes.
The flip side of that is when you buy a house, you can sometimes end up getting a HUGE tax return refund due to interest and other types of home-owner related deductions, so you theoretically COULD end up breaking even on the taxes.
“Claiming 8 on your taxes” means that you are pretending that you have 8 kids so you don’t have as much taken out of each paycheck for taxes. You can have as much or as little WITHHELD as you want. It doesn’t matter whether or not you own property. However, at the end of the year you have to reconcile how much you paid in taxes with how much you truly should have paid in taxes. So if you have less withheld all year long then you’ll just wind up owing more come tax time.
So ultimately what you claim on your W4 has no net effect on how much you pay in taxes. It only affects when you pay them.
You should really find better people to go to lunch width.
The year I did a bunch of consulting on the side and earned almost 40k in untaxed 1099 revenue my accountant told me I was fine paying in full at the end of the year. I had asked him if I had to do quarterly estimated payments I had read about online. REALLY sucked sending that huge check to the fed though.
I THINK you have to have more than one year where you owe a lot in taxes to get in trouble with paying. Maybe it was something specific to my situation though. Not a place you want to go with an unqualified “I think” answer for sure.
That said, being single and owning a house isn’t going to get you even close to breaking even claiming 8. MAYBE in the first year you buy if that year happened to be the housing tax credit year (which is gone now), but after that you’re just going to end up with a massive tax bill.
Ideally you should have enough withheld to get a small refund at the end of the year. That way you’re not getting hit with a huge bill that could get you into interest trouble with the IRS, but you’re still taking home as much as possible each paycheck and hopefully using it to pay off higher interest debt. Pretty much everyone I know who gets excited about a big tax refund is also floating a ton of credit card debt at 10+%. Instead of giving the government an interest free loan all year they could have taken that extra money THAT WAS THEIRS IN THE FIRST PLACE and used it to pay down that debt.
Sure enough there is technically a fine and possibly criminal charges for “falsifying” your W4 and not having enough taxes withheld. Probably not enforced very much, but it’s there.
I used to use EXEMPT status last year on some paychecks that had bonuses and stuff in to offset my student loan refunds as I rather have the money sitting in my interest bearing account and not in the governments hands just go get a few thousand back at tax time. My little craftyness backfired as I didn’t include some other income in it so my tax debt for 2010 was about $900 since I didn’t account for my side consulting which is obviously taxed so I pretty much sent in $300 April 15th, filed for the extension, and have to pay the rest plus interest this year which sucked writing that check.
I just was looking at some numbers as people say that with a house you claim less than you would without one so just seeing how much more money would be in my pocket having a house to write off for numbers and payment estimates.
Not sure if I am reading this correctly but if you ended up with a $900 tax bill at the end of the year that you couldn’t afford to pay by the 15th (or 18th as was the case for the 2010 tax year), then I think you would benefit from claiming no more than 2 exemptions on your W4.
To confirm what Fry said, yes there can be penalties for underpayment of tax. There are safe-harbor rules to avoid penalty based on PY taxes but that won’t always hold up in cases of knowingly misrepresenting.
I might come back to this later with some more info (little busy right now). Feel free to send me a PM if you have any questions.
With my house in cheektowaga-sloan I was witholding Single 3 Fed and was about breaking even with the Mortgage Interest, Taxes, and School loans as deductions; before the house I was about a single 1.5 (Single 2 plus some extra $$ to break even). It all depends on your particular income/financial situation is. If the house taxes and mortgage are a big enough write off to JUST drop you a tax bracket is where the largest effects are seen. The 3% between 28% and 25% is a lot; plus it’s even more the lower the tax bracket you get.
I claim 0 right now and usually get a lot back because of student loan interest. The only reason I filed an extension was I had money owed for work done in 2010 that was coming to me mid year which I just used to pay it. Only reason I owed was because I got creative and went exempt on 2 paychecks and forgot to include some other income I had in 2010 which screwed me.
Ah good way to put it. I guess I am trying to baseline what I pay in taxes and what I would pay having a larger asset just for number purposes.