“Taking extra allowances on my W-4 is something I have practiced for about 30 years now. At first it was just a way to get a little more money during the year. But then I realized that I could take a little more, and then afford to ‘save’ more all during the year and earn ‘interest’ all year long! It’s a balancing act that takes a little practice and tweaking, but it can really pay off once you get it in place. Most years I only get about $200-$300 back at the end because I’ve already received the rest and invested it.”
Ed Johnson – DC Metro Realty Team
A homeowner’s tax saving benefit is generally realized when they file their federal income tax return after the money has been spent for the interest and property taxes. Some people look forward to the refund as a means of forced savings but some people need to realize the savings during the year.
It is possible to adjust the deductions being withheld from the homeowner’s salary so they realize the benefit of the savings prior to filing their tax returns in the form of more money in their pay checks. Employees would talk to their employers about increasing their deductions stated on their W-4 form.
By increasing the exemptions or deductions, less is taken out of the check and the employee will receive more in each pay check. If a person over-estimates their exemptions and therefore, underpays their income tax, they might incur interest and would have additional tax to pay when they filed their tax return.
Buyers considering this strategy should seek tax advice and discuss it with their human relations department at work. Additional information is available on the Internal Revenue Service website about Completing Form w-4 and Worksheets.