Tax question

[kt_mom]

We have some friends that are getting $13,000 back in taxes this year. I think that's state and federal. I am having a hard time understanding how this is possible. I know that he makes about $45,000 to $50,000 a year. His wife is a full time nursing student. She gets about $2000 a month in survivor benefits for her two kids from her previous marriage but that isn't taxable right?

I just don't understand how they are getting so much back. They do have three kids and I think she said they paid about $18,000 in interest on their mortgage last year plus day care for one of their kids for sept to dec of 2009and her nursing tuition. I just don't understand how they are getting back so much money. There's no way he had that much withheld over the year. I think last year they got about 6,000 back she said but they had one less child. The year before they got a real high amount like 5,000 or 6,000 dollars.

 

[msmayor]

Bigger question....why does it matter?

 

[maggieusa]

did they buy a house or a new cars this year this might explain in but it doesnot matter maybe they are just saying they are getting that much back.

 

[dawson5]

I would want to know what they are doing so I could get that much back. Imagine what you could do with $13,000 in a lump sum.

 

[mrsklamc]

I would want to know what they are doing so I could get that much back. Imagine what you could do with $13,000 in a lump sum.

You could do much less with it in a lump sum than you could having the cash over the course of the year.

 

[dawson5]

We budget and pay cash for everything. A lump sum payment once a year would be a nice bonus to anyone, even if it is a one time/once in a lifetime deal. I am just curious if I am missing a deduction or something.

 

[msmayor]

I would want to know what they are doing so I could get that much back. Imagine what you could do with $13,000 in a lump sum.

If you want that much back then have more withheld. Then you'll have to do without more money during the year.

Really...its not rocket science. There are some tax credits that are refundable, but the most significant way to get a lot of money back is to pay more in during the year.

Its not the smartest way to get a lump sum that large. The smartest way is to take it out of your paycheck yourself and put it in the bank to save.

 

[Acklander]

What they're doing is having too much withheld. Some prefer to do it that way, sort of a forced savings. Some prefer to just put their money in a savings account each week. Sometimes life circumstances come up part way thru the year that cause you to need to adjust your withholdings (either up or down) but you wait until the end of the year to do the paperwork.

Personally, I prefer to get a small refund, but that's me. The years that I got the biggest refund was when I worked in sales. I'd get a weekly draw, and then once a month get a bonus check for my commissions above and beyond my draw. They way they did the withholdings was as if I got paid every week (like in my draw) so when they bonus check came out it always had a huge amount of deductions because the computer was withholding as if I made that amount for a week. At the end of the year it all adjusted out so I received huge refunds.

If you want a huge refund like the OP's friend, Just change your withholding to single/zero plus an extra $200.00 a week (or whatever amount you want to have extra at the end of the year). Then you'll get a huge refund. Heck, you can even put in to have your entire paycheck withheld until the end of the year if you want, and then get it all back at the end of the year. Whatever floats your boat. But when it's all said and done, You're gonna have a certain amount of income/you're gonna have a certain amount of deductions/and you're gonna owe based on that - what you have withheld or don't have withheld isn't going to change the final amount that you pay in taxes.

 

[dawson5]

we do. We have one car payment, one house payment, insurance and utilities. we have our savings. I am seriously curious if I am missing a deduction.

Rocket science or not, I know I am not versed in tax code. With it being ever-changing, I wonder if there is something new out there that we've (hubby or myself) not read about. I wonder if this is that tax credit for living in the home for 5 years.

 

[quentina]

Last year we got $13,999 back in federal, owed a few hundred to state and local.

We adopted 2 special needs children and you get a $12,000 tax credit for each to use over 5 years. It reduced our liability to zero so, we got back everything we paid in. THis year, I went tax exempt (since I knew we would have no liability) and we are getting back the 8000$ my husband paid in.

There are some circumstances that cause large returns....ours is one of many.

 

[dex08]

I would want to know what they are doing so I could get that much back. Imagine what you could do with $13,000 in a lump sum.

Why don't you just ask your friends directly and see how they did it?

 

[Acklander]

we do. We have one car payment, one house payment, insurance and utilities. we have our savings. I am seriously curious if I am missing a deduction.

Rocket science or not, I know I am not versed in tax code. With it being ever-changing, I wonder if there is something new out there that we've (hubby or myself) not read about. I wonder if this is that tax credit for living in the home for 5 years.

It's highly unlikely you're missing a deduction. If you use a tax program, the people who design it keep up with all the tax changes and ask you questions to see if there is anything new you can do - If you own a business your "tax guy" will know which changes will apply to you.
The OP's friends are making 45-50K a year, with only one person working, has a mortgage,tuition, daycare expenses and 3 kids to support. I would assume that their tax liability would be fairly low just with those deductions listed - add in that he probably had the max in withholdings on his paycheck - and bingo - you get a huge refund

 

[dawson5]

What they're doing is having too much withheld. Some prefer to do it that way, sort of a forced savings. Some prefer to just put their money in a savings account each week. Sometimes life circumstances come up part way thru the year that cause you to need to adjust your withholdings (either up or down) but you wait until the end of the year to do the paperwork.

Personally, I prefer to get a small refund, but that's me. The years that I got the biggest refund was when I worked in sales. I'd get a weekly draw, and then once a month get a bonus check for my commissions above and beyond my draw. They way they did the withholdings was as if I got paid every week (like in my draw) so when they bonus check came out it always had a huge amount of deductions because the computer was withholding as if I made that amount for a week. At the end of the year it all adjusted out so I received huge refunds.

If you want a huge refund like the OP's friend, Just change your withholding to single/zero plus an extra $200.00 a week (or whatever amount you want to have extra at the end of the year). Then you'll get a huge refund. Heck, you can even put in to have your entire paycheck withheld until the end of the year if you want, and then get it all back at the end of the year. Whatever floats your boat. But when it's all said and done, You're gonna have a certain amount of income/you're gonna have a certain amount of deductions/and you're gonna owe based on that - what you have withheld or don't have withheld isn't going to change the final amount that you pay in taxes.

If they followed your math, on $50,000 a year, they are bringing home roughly $950 a week. 0 deductions + $200, that doesn't leave a lot for house, utilities, or even food. I'm trying to remember what the percentage worked out for 0 deductions.

I understand about the commission, hubby works for a car dealership. He gets his weekly salary and once a month commission. We definitely don't get that much, I don't want to give the gov't more of our money but you have to admit the numbers are huge for the income bracket.

Why don't you just ask your friends directly and see how they did it?

I am not the OP. I just commented on it. I am just honest in saying that I am curious on how they did it.

 

[dex08]

I am not the OP. I just commented on it. I am just honest in saying that I am curious on how they did it.

Oops sorry! Wasn't paying enough attention!

 

[kt_mom]

Bigger question....why does it matter?

It doesn't really matter, I'm just curious. I think most people would be. They were very open in sharing what they were getting back so it's not like I was prying into their business.

I could do a lot with a one time lump sum like that. In fact they are planing to do a lot with it. They are putting on a new deck, a few new windows and i think refinishing their hardwood floors, putting some down on a car and taking a vacation with some left over for savings.

No they didn't buy a new car or house. I'm happy for them, a little jealous of course, but happy for them.

 

[bigdisneygroup]

I'm not sure exactly how much you have to earn but I do know that they raised the amount of money you can make and still claim the earned income credit. They also now allow you to claim three children under that. I'm don't know how it all works but I know a friend of mine gets quite a bit back because of that. I think it's in the $45,000 range that you are still eligible.

 

[kt_mom]

I'm not sure exactly how much you have to earn but I do know that they raised the amount of money you can make and still claim the earned income credit. They also now allow you to claim three children under that. I'm don't know how it all works but I know a friend of mine gets quite a bit back because of that. I think it's in the $45,000 range that you are still eligible.

I wondered if the EIC had anything to do with it. I don't know anything much about that though.

It just seemd like a lot of money. It would be nice to get that much back but I don't want anymore taken out during the year then we already have. DH and I both claim 0. He works at a car dealership and gets bonuses throughout the year from outside that aren't taxed so we just hope not to pay each year. This year we bought a house so we are getting a refund back and I'm thankful for that.

 

[Acklander]

I'm not sure exactly how much you have to earn but I do know that they raised the amount of money you can make and still claim the earned income credit. They also now allow you to claim three children under that. I'm don't know how it all works but I know a friend of mine gets quite a bit back because of that. I think it's in the $45,000 range that you are still eligible.

Yeah, but the EIC works like a bell curve. If the OP's friends made about 45K a year, they could apply about a $600.00 credit towards their tax liability - If they made about 49K then the credit is about $3.00, so it probably had very little impact on the amount of refund they got.

 

[dawson5]

I wondered if the EIC had anything to do with it. I don't know anything much about that though.

It just seemd like a lot of money. It would be nice to get that much back but I don't want anymore taken out during the year then we already have. DH and I both claim 0. He works at a car dealership and gets bonuses throughout the year from outside that aren't taxed so we just hope not to pay each year. This year we bought a house so we are getting a refund back and I'm thankful for that.

That happens with my husband. He gets "spiffs" to had out to the techs. They are paid to him, he gets the form for taxes. Tax lady told him to keep like one out of every six (I think/about) to offset the taxes he's paying on it. I asked him about getting forms individually, he said too much hassle and easier this way.

 

[kt_mom]

That happens with my husband. He gets "spiffs" to had out to the techs. They are paid to him, he gets the form for taxes. Tax lady told him to keep like one out of every six (I think/about) to offset the taxes he's paying on it. I asked him about getting forms individually, he said too much hassle and easier this way.

We had almost 6k in 1099's this year. I wish they would just tax the bonuses throughout the year but it's an outside company that they come from and they don't take taxes out. At one point DH was sharing some of the bonuses with other managers until I told him to stop that they needed to be set up to get their own because they were basically getting tax free money and we were footing the tax bill. He said that he accounted for that by not splitting it evenly to account for the taxes but I told him it didn't matter because it wasn't going on their income for the year, it was all going on ours. Now everyone is set up to get their own checks and fool with their taxes.