Tax novice looking for advice

Mar 10, 2007 6 Replies
N

I am afraid that my question may be too basic for this forum. Bear with me for a moment as I have decided this year to take on my tax return myself so I am on a learning curve. I think my tax situation is fairly straightforward (no real estate, just a few investment but nothing major). I used Turbotax and arrived at a point where I am wondering wether I should let it go and go back to by tax consultant. I filed federal and 2 states (NY, CT) last year and got a sizeable federal refund and owed quite a bit to New York. I live in NYC and work in CT. I am filing joint married. Last year my W2 listed 3 excemptions/allowances, this year there are 5. Turbotax calculated for me that I owe this year for federal tax. While my income is appr 15% higher then last year I wondering how this is possible that my refund situation from last year turned into oweing money this year. I do undertand that there are a number of factors that may influence this. I do think though that overall everything remained stable and I am more looking for the reasons that may have changed my tax situation this year. Thanks in advance



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H

Withholding allowances are claimed on form W-4. They result in an ESTIMATED amount of tax being withheld during the year. By increasing from 3 to 5 allowances you have elected to have LESS withheld from your paycheck, resulting in an underpayment situation this year.

Basically, your problem is that you are not having enough withheld from your paycheck each pay period, because you increased the number of withholding allowances on your form W-4. Adjust that number to more correctly withhold and you should be OK for 2007.

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J

Print out your tax return for each year and then compare the amounts on each line item. This line-by-line comparison should point you to the increases and with the software you can look at what the differences are (you may have entered something by mistake)

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B

Do you mean your W4? That's where you claim exemption numbers, and it affects the amount of tax withheld.

Given the reduction in withholding, and your reported 15% increase in earnings, it would be a miracle if your tax bill didn't rise -- substantially. You probably need a little more tax advice.

Bill

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L

Easiest way to find out why there is a difference is compare last year's tax return side-by-side with your current tax return. That should show you what caused any increases in taxes or decreases in deductions/credits. Rudy

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Disclaimer: The posted answer is for educational and guidance purposes only and Lizcano Tax Services, LLC and/or Rodolfo Lizcano have not been engaged to render any tax, accounting, legal, or other professional services.

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P

Let's see... did your 15% increase exceed the extra two exemptions? Why not compare the two years to spot the differences?

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B

Everything did not remain stable. You increased your withholding allowances from 3 to 5, which means you had less tax withheld from your pay. And your income was significantly higher. You have given very little detail, but basically you made more money and had less tax withheld. With those changes, it's no surprise that you owe tax at the end of the year. Bob Sandler

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