Changing tax exemptions since they will confiscate tax refund

[Ezrin]

Since the trustee will ask for my tax refund check for all 4 years I'm on the plan, would it be dishonest or against any rules if I go to my employer and claim more exemptions? Right now I claim "1" , although I know I qualify to claim "2". That would give me a little more on my paycheck and less that I would have to give up. But of course I don't want to do this is it's going to put my plan in any kind of jepordy

[anonymuse]

No, it would not be dishonest at all. In Chapter 13, trustees take it to make sure people aren't underclaiming to try to keep money away from the trustees. I don't like owing or getting a refund from the IRS. I calculate the right number of exemptions plus add about an extra $25 each month so that I break even. Just make sure that you get it right so you don't owe money to the IRS since you don't have excess money lying around come tax time.

[inseriousdebt]

Our lawyer actually suggested that we do this to pay ourselves first. We get quite a lot back because of student loan interest and two mortgages. My question is, how do you go about knowing how much to claim for exemptions? I have always claimed 0, my husband 1. It's probably a stupid question, but I really have never done this before. ???

[anonymuse]

Do you use TurboTax? If so, use the function to project exemptions for the next year.

Otherwise, here's the IRS publication "How do I adjust my tax withholding?"

http://www.irs.gov/publications/p919/index.html

and here is the PDF version

http://www.irs.gov/pub/irs-pdf/p919.pdf

[inseriousdebt]

Thank you so much Anon...you provide such wonderful information in this forum as do so many others.

[Ezrin]

I'm going to my human resource office next week and ask them, but from what I remember there is a worksheet that asks you questions to figure out how many exemptions you can claim. I know I qualify for one exemption since i'm single, and I qualify for another because I'm head of household and no one else can claim me as a dependent. I think I may even be able to put three, but that might be taking it too far-- like the previous poster said I don't want to end up with too much more income (disposable money) or the trustee might increase my payments.

Our lawyer actually suggested that we do this to pay ourselves first. We get quite a lot back because of student loan interest and two mortgages. My question is, how do you go about knowing how much to claim for exemptions? I have always claimed 0, my husband 1. It's probably a stupid question, but I really have never done this before. ???

[anonymuse]

Ezrin, read the IRS publication--it explains it all.

[bobby125]

Here has been my experience:

I work for a larger company and you can change your dependents on the internet so it is easy and seemless to process as often as you like

I also recieve monthly commissions, which get taxed at the same rate no matter how many dependents you claim: This can be frustrating. (example: you claim 2 dep. and you get taxed, I dunno $500 on your base and $1000 on your commission, well if you change that to 10 dep., your base will get taxed $100 but still a $1000 on the commission)

Now, personally, over the past 2 years or so, I have claimed exempt, that means no federal or state taxes come out of my checks. I have a family of four, my wife accumulates write offs in expenses from real estate and I have 3 rental properties, so I dont owe much anyways, but usually towards the end of the year, I claim some dependents and pay back some (For me, this has worked over the past 2 years, as I have not owed more than $300)

With all that being said, it actually hurt me to have no taxes, because when it came time to file BK, my take home income was inflated because of the no taxes, but the trustee and govt dont care about that (fyi I didnt wait to file, bc those 6 months my commissions were at an all time low)


So....I have given (more than!) enough background, but my current plan is this, and once again, I do it online for a large company, not handing paperwork to a small HR dept, which could look suspicious and more important, annoying.......For the most part, I am going to stick with the Exempt strategy and in months where I expect a decent commission, change it and let them take some money out.

Two arguements here:

No taxes do mean higher take home, which in an audit, would mean larger payments

But if you have the taxes taken out, and that means a refund (need to consult a tax estimator calculator online) they will more than likely take that money

I would rather take the odds of no audit and paying a small tax bill at year end over the likelihood of a large refund, which will almost be surely taken away

Really though, you need to review your last years tax return:

Are you going to make close to the same amount of money?

Are you going to keep the same write offs? (i.e. mortgage, children, etc)

If so, how much did you pay last year in federal and state?

What have you paid so far?

If you are already at that number, then claim exempt

If not, take the difference and divide by number paychecks left and target the correct amount of dependents

You can get all this info off your current paystub and W-2


***all is just my opinion, sorry for the long post***

[bobby125]

btw

you can claim whatever you want on your taxes, forget the questions, you just want to control how much they take, if you have to claim 9, then claim 9

i would say they wont audit your monthly amount for no reason, but be sure they will take away any refund


-better to ask for forgiveness than permission

-also, i was told better to file thorugh the mail and not e-file bc harder for trustee to pull your returns

i dunno if that is true, but it sounds logical?

[mandy25]

We went to see a lawyer for the first time today and he told us that they cannot take your Earned Income credit. And that they wont take your refund unless its over 2000. But no matter what they cant touch the earned income credit. I live in Arkansas. I thought it was interesting how different things are everywhere.
Mandy

[arkienurse]

We went to see a lawyer for the first time today and he told us that they cannot take your Earned Income credit. And that they wont take your refund unless its over 2000. But no matter what they cant touch the earned income credit. I live in Arkansas. I thought it was interesting how different things are everywhere.
Mandy

I live in Arkansas too.My trustee does not take our tax refund. I did ask our lawyer if we could send a portion of it to the trustee every year to get us out quicker, but the answer seemed to be negative . The head lawyer( we used a chain - please kick me in the head for that) did send out a letter after we filed, suggesting that we minimize our refund each year by changing our deductions. I finally got around to it this year, but have to be careful, as the way DH is paid, they never take enough out of his check to cover the tax.

[Jenny]

If you claim too many exceptions you could end up paying a penalty or facing an audit or both. You need to be careful.

[SinkingFast]

If you consistently do not pay at least whatever minimum the IRS says you should, then you would probably start getting penalties and might get audited. A one time fluke event, maybe not.

Getting called for an Audit is way more complicated than simply not paying enough tax one year.

Been there, done that. Got the T-Shirt.

For both an Audit and no penalty for not paying enough tax.

[bobby125]

Jenny and SF

Is that true? That if you claim too many dependants that increases the likelihood of an audit?

The last 2 years, I have claimed exempt almost all year

What do you guys think I should do?

On an earlier post in this thread, I explained how my comp check gets taxed....basically no matter how you change up the dependants they take the same % out of my comp, which is almost 40% of my income. This makes it difficult to make myself come out even at years end. And between 2 propoerties, I have about $550,000 in mortgage and also Mariied w 2 children so I have a lot of deductions plus my wife is in real estate and writes off many expenses

We keep good records using quicken, but still an audit, is NOT something I am interested in, nor letting a trustee take a refund

Tough Spot, either risk the big refund by keeping expemtions low, or claiming no exemptions, and risking an audiit

Is that basically where I am at?

Alternatives?

Like I said, claiming a larger number of exemptions, i.e. lets say 9, doesnt effect it to much bc the comp checks are still dinged at 40%

Thoughts? If any?

[13inOR]

EZRIN:Yes, definitely adjust your withholding. Our attorney said to figure out what we needed to claim to break even because refunds would go to the trustee and if we ended up owing more (we already had to put some to the IRS into our plan)
the IRS could move to dismiss and would win.