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Message
Employee Payroll Tax Withholdings-Question
Posted on 7/30/13 at 1:34 pm
Posted on 7/30/13 at 1:34 pm
As I have stated here, I am about to purchase a double with the plan of renting out the other side.
My situation: My income will be rising due to addition of monthly rental payments. Also, my tax deductions will go up as I will begin itemized deductions. I will be leaving my current 401k contributions the same. I currently am single with 1 federal deduction.
Question: In the attempt to have a more accurate deduction, should I raise my deductions to 2? I would like to have as much of my paycheck every period while not owing additional taxes on Tax Day.
TIA.
My situation: My income will be rising due to addition of monthly rental payments. Also, my tax deductions will go up as I will begin itemized deductions. I will be leaving my current 401k contributions the same. I currently am single with 1 federal deduction.
Question: In the attempt to have a more accurate deduction, should I raise my deductions to 2? I would like to have as much of my paycheck every period while not owing additional taxes on Tax Day.
TIA.
This post was edited on 7/30/13 at 1:35 pm
2
Posted on 7/30/13 at 1:40 pm to Oenophile Brah
quote:
Question: In the attempt to have a more accurate deduction, should I raise my deductions to 2? I would like to have as much of my paycheck every period while not owing additional taxes on Tax Day.
No. Rental real estate is a great place for deductions - you don't even know the scope of your increased tax liability yet, and we're already mid year.
Owing ~$1000 isn't the end of the world - in fact, it's ideal. You plan for that by setting it aside in an interest bearing, but liquid account (probably money market, unless you can get a nice rate on a 30-day CD - which is unlikely, short term).
You're an entrepeneur now - don't be afraid of a little tax liability - it is a good thing.
Posted on 7/30/13 at 1:45 pm to Ace Midnight
quote:
No. Rental real estate is a great place for deductions - you don't even know the scope of your increased tax liability yet, and we're already mid year
Thanks for the response.
I should have clarified. I will probably only have 4 months of rent by years end.
This is primarily in antipation for the next year.
quote:
Owing ~$1000 isn't the end of the world - in fact, it's ideal. You plan for that by setting it aside in an interest bearing, but liquid account (probably money market, unless you can get a nice rate on a 30-day CD - which is unlikely, short term).
Luckily I work for a local bank that offers excellent rates on both MM and short term CDs.
Posted on 7/30/13 at 1:52 pm to Oenophile Brah
quote:
Luckily I work for a local bank that offers excellent rates on both MM and short term CDs.
Good news is you get a preview this year.
If you come out owing a good chunk this year, maybe redo your W-4 at work to reflect a second deduction. However, are we talking about $5000 to $6000 in gross rent? Or quite a bit more.
Even 20% of $6000 is only $1200. I wouldn't sweat that unless you're in danger of penalty and interest from the IRS.
ETA: Crap - I just figured out you want LESS withheld from your paycheck...
Yeah, I would increase the deductions to 2 now - always pick what you are maximally entitled, unless there's a good reason not to (i.e., you're owing penalties and interest at the end of the year). You usually get a pass the first year you hit the penalty, unless you've pushed the envelope too far.
I want to owe as much as possible, without being in the penalty. They don't pay you any interest on your "refund" which is really just your money you let them hold all year (up to 16, 18 months).
This post was edited on 7/30/13 at 1:56 pm
Posted on 7/30/13 at 2:07 pm to Ace Midnight
quote:
However, are we talking about $5000 to $6000 in gross rent? Or quite a bit more.
Hoping for about $11K/year.
quote:
Yeah, I would increase the deductions to 2 now
quote:
I want to owe as much as possible, without being in the penalty
This is what I was asking. I don't want any return, I want my money when I earn it.
I will be going from standard deduction($5950) to itemized(interest+prop tax+homeowners ins+expenses). Does that sounds correct?
Posted on 7/30/13 at 2:12 pm to Oenophile Brah
quote:
I will be going from standard deduction($5950) to itemized(interest+prop tax+homeowners ins+expenses). Does that sounds correct?
There are tons of benefits to being a landlord. If you're doing your taxes yourself, for now, you need to read IRS Pub 527 from cover to cover.
LINK
Posted on 7/30/13 at 2:22 pm to Ace Midnight
quote:
There are tons of benefits to being a landlord. If you're doing your taxes yourself, for now, you need to read IRS Pub 527 from cover to cover.
Thanks AM for the heads up. Guess I have some reading to do.
quote:
If you're doing your taxes yourself
No longer. Mistakes were made!!!
I may try my hand again after this year.
Posted on 7/30/13 at 3:19 pm to Oenophile Brah
Why not prepare a projected tax return for 2013, and determine what your tax liability is likely to be? It's not that hard. You know what your salary will be, and you can add whatever amount of income you anticipate from the rental activity plus any other sources of income. Then you take into account any adjustments to income, such as IRA contributions or student loan interest, to determine your projected AGI. For your deductions you can play it safe and use the standard deduction, or you can estimate the amount of itemized deductions you will be able to claim. The final step to determining your projected taxable income is to subtract the amount of personal exemption(s) you are entitled to. From this you can get your projected tax liability from the tax tables or tax rate schedules. Compare the projected liability to your expected withholding and any tax credits to determine whether you will owe money or not. Adjust your withholding accordingly.
You can do the same for 2014 as soon as the IRS announces adjustments to items for inflation. There may be some complications due to Obamacare, but they shouldn't apply if you have an employer sponsored health insurance plan.
You can do the same for 2014 as soon as the IRS announces adjustments to items for inflation. There may be some complications due to Obamacare, but they shouldn't apply if you have an employer sponsored health insurance plan.
Posted on 7/30/13 at 3:52 pm to Poodlebrain
quote:--------------------------------------------------------------------------------
I will be going from standard deduction($5950) to itemized(interest+prop tax+homeowners ins+expenses). Does that sounds correct?
These items that are associated with your Rental property need to be deducted against the rental income. They should not go on your Schedule A - Itemizied deductions.
You will actually get more deductions this way: Deduct 100% of interest, insurance, real estate taxes, and expenses against the rental income on your Schedule E, and still take the standard deduction of 5,950.
The only issue you should worry about, is that if you are counting on taking a loss on the rental property once you figure in all your expenses with repairs and ones mentioned above, and depreciation of the property, you may not be able to deduct it.
Passive Losses can be limited if your oridinary income is at a certain amount. Without looking at your taxes, I would not know. Just something to think about.
Also, I would not change anything on your withholding just yet.
Posted on 7/30/13 at 4:02 pm to LSUMon
quote:
You will actually get more deductions this way: Deduct 100% of interest, insurance, real estate taxes, and expenses against the rental income on your Schedule E, and still take the standard deduction of 5,950.
Ok, so the rental income will be seperated from my salary and investments?
The rental income will be deducted by the acceptable homeowner deductions, and I would still be able to take the standard deduction off of my personal income?
Thanks
Posted on 7/31/13 at 9:04 am to Oenophile Brah
Yes.
The rental income goes on Schedule E of the return. The income is then reduced by the expenses associated with the property. The net amount is what you include as part of your adjusted gross income.
You then still get to take your standard deduction and personal expemption to get to yout taxable income.
If you file your own return, or use turbo tax, I would highly suggested using a CPA this year. You can see how everything is properly reported, and you can always go back after that.
The rental income goes on Schedule E of the return. The income is then reduced by the expenses associated with the property. The net amount is what you include as part of your adjusted gross income.
You then still get to take your standard deduction and personal expemption to get to yout taxable income.
If you file your own return, or use turbo tax, I would highly suggested using a CPA this year. You can see how everything is properly reported, and you can always go back after that.
Posted on 7/31/13 at 9:15 am to LSUMon
quote:
I would highly suggested using a CPA this year.
This is sound advice.
I really appreciate everyones suggestions.
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