Over at The Liberty Papers, Brad Warbiany suggests you put your money where your mouth is:
Tax day is coming up. Assuming your earnings are pretty similar to the previous year, it’s pretty simple to estimate your tax liability. It’s also pretty simple to estimate your withholding. There are several free calculators online to do it for you, including one from the IRS. How handy!
But I’ll make it even easier. I consulted a tax preparer that I’ve known for years, and he’s provide a relatively simple rule of thumb that should serve you well. When it comes time to fill out your W-4, assuming you’re a salaried employee, here’s what you do:
- Count yourself: Me
- Count yourself again: Myself
- Count yourself again: I
- Count your spouse (if you have one)
- Count each of your dependents (if you have them)
Me, Myself, and I, then one for your spouse and one for each dependent.
For me, I have me, myself, and I, which is three. I have a wife, making four. And I have one child and one on the way (who will arrive in 2009), so there’s two more, giving me a total of 6. This is 1-2 more than the standard W-4 form suggests that I claim, so I’ll under-withhold, but should be close enough to my actual tax burden to avoid penalties.
So here’s my suggestion. April 15th, go to your HR department and change your W-4 claimed exemptions. Go with the maximum exemptions that you calculate will keep you from over-withholding, but small enough to avoid penalties. Budget (save or invest) the difference, so that you can pay the necessary tax next April, and don’t dare postmark the check to them before April 14, 2010.
It’s not a big difference. But if enough people do this, it will be big enough to be noticed.
And whether it’s noticed or not, at least you’ll avoid giving the government a tax free loan for a year.
As I’ve said many times in the past, tax refunds are for suckers.