AFH thinks it’s HILARIOUS to remind me of the time I called him and smugly said, “Don’t worry about our refund this year, we’ve got this” because I’d decided to use a tax calculator online and estimated we were going to get back $7,000. I’d chosen Married – Filing Separately instead of Married – Filing Jointly and also missed out a bunch of shit. When our H&R Block tax rep sat across from us and told us we were going to get $4,000 back that year, we both had the balls to be disappointed (it was also the year we’d gotten married so that’s why our return was higher than normal). Meanwhile, the woman in the cubicle next to us was explaining why her taxes were all sorts of messed up due to her husband who hadn’t worked in years and her drug-addict son. I’d want to dropkick us too.
For the past few years we’ve had a VERY strange H&R Block tax rep who is extremely socially awkward but is excellent with numbers. It’s 90 minutes one day a year so we never bother to make the change to another rep and just grin and bear the awkwardness. However, this is a guy who does his best to find us the biggest return, even if he has to perform a few scenarios to show us.
Every year AFH and I have been together we’ve received a tax refund. There are some out there that believe you should try and just not owe anything because you’re giving the government a free loan. This is a completely valid opinion to have but I am overly cautious for a reason: one year I changed my total allowances number on my W2 and ended up OWING $2,400 to the IRS. I was 24 and I was broke and it was a scary year owing money to a government agency.
So, keep your allowances low (2 or less) and take advantage of the following as much as possible:
401K – the limit last year was $19,000. Max out your 401K every year and you’re well on your way to hitting that $1,000,000 in retirement through compound interest. I changed jobs and had a 60 day waiting period before any of my benefits would kick in so unfortunately I missed out on four paychecks worth of contributions.
HSA – this is offered by your employer if you sign up for a high deductible health plan. While the limit was $7,000 for a family last year, I could only afford to put in $300 a month ($3,600 total). It ALL went towards my deductible when I got my cataract surgery done. However, the tax benefits still counted. Sight and tax benefits!??!?! Well that’s a steal!
Dependent Care FSA – available to you if you have kids in daycare or after-school programs (I think it also works for dependent parents but seeing as mine have buggered off and I will never have to deal with that particular issue, I’m choosing to ignore that option). The yearly maximum you can put in is $5,000 which amounts to $416.66/month. Most of those companies reimburse you within a week of your payment and uploading your receipt to the FSA website but the money is TAX-FREE! One quick point though – if you have a spouse/partner starting a business working from home (or just a stay-at-home parent) who makes less than the amount you’re paying on daycare, you can’t legally claim this benefit.
So, with that being said (and I know there are TONS of these programs that you can take advantage of but these are just the ones we use) all of those contributions are taken out of your paycheck BEFORE taxes. Yes, I may be putting in $450/paycheck to my 401K but the amount that’s actually getting taken out of my paycheck is $315 (most 401k websites have calculators to show you these numbers). That means it’s like $135 FREE DOLLARS are going towards your retirement. Or at least it is until you get taxed on it when you take it out after 59.5 years old…meh.
The goal with taxes is to pay as much towards these programs as possible so that your tax liability is as low as possible come tax filing time. Hopefully this means you get a refund or at least don’t owe anything to the government. Oh and those lovely kiddos deductions. Each child can get you a $1,400 refundable deduction. So pop ’em out! Wait, don’t follow that advice. That’s terrible advice.
The FSA is money that was pulled tax-free out of my paycheck and goes right back in a week later so $416.66/month goes right on debt. As for the 401K, I get a match from my company so every time $450 goes in, so does $130 from them. I’ve hit the max match they’ll do which is fine but once the debt’s paid off, I’ll have to put in $812.50/paycheck to hit the 2020 contribution limit of $19,500. That’s a daunting prospect we’re not ready for yet as we just don’t have that money available but maybe a couple of years down the road. So, your homework this week is to see what your company offers in the way of tax-deductible savings, what you can afford, and calculate the tax savings you can take advantage of. And hopefully at the end of it you don’t owe any money to the government *shudder* – FemaleGG.
A blog/website where these happily married, 30-something parents of 2 little minions rant, rave, and speak in tongues. Raw, honest, and riddled with profanity. Get on board and let’s make The Ghost Generation awesome together! http://theghostgeneration.com Twitter.com/Gh0stGeneration