I'm Already Planning Ahead for Next Year's Taxes

Another tax season has passed, and my wife and I have submitted our return. We received our refundquickly and put it to good use - paying off some of our medical bills. Each year as the tax season passes and the remainder of the year commences, we discuss what led us to the refund or the extra tax owed. We then adjust our W-4 forms and financial activity to suit our plans for the next year's return.

Payroll deductions

We both teach school full-time, so we make modest salaries. We range in the 12-15% tax bracketdepending on the tax laws of the year. We are not wealthy, but we have learned over time how make things work with our moderate income. We have the normal payroll deductions that most people would have: taxes, social security, Medicare, health insurance, and dental insurance. Florida has nostate income tax. We elect other payroll deductions as well, and many of ours qualify for pre-tax deductions.

Part-time employee vs. Freelance writing

· Part-time employee

I cannot understand this law. In the early part of 2011, I worked as an online adjunct for a college. I made approximately $2350 gross pay for four months of work. I had approximately $343 (15%) deducted as taxes, which is fine with me. After 19 years I grew accustomed to the job's tax rate. However, I stopped working the job after April.

· Freelance writer

I spent the last four and a half months of 2011 writing freelance and made approximately $2600 with no Federal withholding. I expected to pay 15% ($390) in taxes. When I entered this information into my return, I discovered that I had to pay $900 (35%) in taxes. That is a difference of $557 more in tax as a freelance contractor rather than an employee. I have no idea why the rules are so different for the same range of income, but they apparently are. At least I now know what to expect for next year and can prepare for it.

Deductible donations

We keep track of every transaction into and out of our credit union accounts on checkbook software. We give to our church all year long, and we make other various money and merchandise donations at times throughout the year. We keep all receipts from all donations in our tax folder so we can know at any time our total for the year to date. These donations reduce our taxable income, so we can calculate how much more refund we will receive or how much less extra tax we will owe depending on the year.

Adjusting our W-4 forms

We must consider our W-4 forms carefully from one tax season to the next. We must decide if we want more taxes deducted and have less net pay or have less tax deducted but more net pay. A large refund looks great, but it means we had too much tax deducted from our salaries. We deduct for our joint marital status with one dependent (our son) on our W-4 forms. That way, we have a little more in our paychecks each payday and still have a nice little something to look forward to each spring.

When I taught as an adjunct employee, I would claim single with no dependents on that W-4 and have additional taxes withheld from that extra income to reduce our tax burden the next spring. That job has gone away, so I now have to plan and save to cover the tax for my writing, which does not withhold tax.

Careful planning each year

The process resumes each year, and it takes careful planning. We keep track of tax law changes as much as we can. It does not always work the way we want, but we normally get that modest refund to help get us through our summers or pay down some bills. Careful planning and discipline allow us to reach our goals just as with any other major financial goal. Straying from the plan can ruin our goal very easily. Thankfully, we have learned from past mistakes, and we now understand how to manage all of our financial activity much better.

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