Remember my last post? The $7K that I owe? Turns out that my accountant was able to bring down what we owed for our federal taxes down to $1600 and increase our state refund to $2900. That means we are going to actually still have $1300 LEFT OVER. How he did it, I don’t know, and I don’t care. I would have been thankful finding out that we broke even, but the fact that we’re actually going to get a refund is icing on the cake.

How on earth did we end up thinking that we would owe $7K in the first place?

About a year ago, DH and I bought a house. Just a couple of months prior, we had a baby. So, I went to the IRS website and followed their instructions on how to calculate what to claim on the W-4. Taking into account the interest we would be paying on the house, the fact that we have a dependent, etc, I ended up claiming 4 for federal. I didn’t know one way or the other how that would truly affect how much we would be taking home each month.

A couple of months later, I got a new job and started making more than my husband. When I did the same calculations as instructed on the IRS website, I came up with zero. I didn’t think much of it; I claimed zero and sent my W-4 to HR. When I got my first paycheck, I didn’t understand why I was making only $300 more than my husband when annually I make $20K more. But I ignored the warning signs thinking that it was b/c our health insurance came from my salary, not his. Big mistake.

Imagine opening a W-2 in January, seeing how much DH took home and seeing how much he paid in taxes: $700. WHAT?! Only $700 of federal taxes were taken out for 8 months of working there? I was sweating bullets. Nonetheless, our accountant said to give him a weekend to look everything over and then he’d get back to me.

Long story short, he worked his magic; thankfully even though I used the SAME IRS instructions for calculating W-4 exemptions, I came up with zero. So that, along with our mortgage, donations, our dependent, and babysitting fees probably were able to compensate for my stupidity.

Moral of the story: always claim ZERO or ONE on your W-4 — better to get a refund at the end of the year than to get a few extra dollars every month and end up paying at the end of the year.

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