How To Fill Out W4 To Minimize Tax Liabilities

If you’re a business owner and you have a business that does not have sole proprietorship, so in other words, you’re a corporation or s-corp, you might pay yourself a salary. In other words, you are in payroll if you’re an active member of your business. When you put yourself on payroll, how do you know how much to withhold? And not only that, you might just have a part-time business, but you might also have a job to go with your business. How do you know how to fill your W-4? I’m sure most of you have seen this form. So today, we’re going to go through and talk about how to fill this form, so that way you’re withholding the right amount and that you don’t owe at the end of the year.

So to complete the W-4, you start by filling out your name. So I’m going to put my name, Evelyn. Your last name, Ivy. You put your social security number. I’ll just put xxx. You put your address, 123 Street. Zip code and now, if you’re single, you put single. You click single. If you’re married, you click on married. If you’re married, but withhold at higher single rate, you click this. So what that does is, even though you’re married, it will withhold you at the single rate. And then, here is the part that is really important. Most people know how to fill out that top part, but where we get confused is, is the page is a four-page form so it’s like… When you progress down the page, it’s like, “What does this even mean?” So I’ll go line by line now. So the next thing after you’ve done the basic information that everybody knows is you have to figure out total number of allowances you’re claiming. So now let’s figure out how to figure out that amount. What the total number of allowances should be.

So we’re going to fill this out with the assumption that the person filing this is a business owner, who’s married, filing jointly and has one child. So we start this by entering one for yourself, and entering one for married filing jointly. Now, these instructions I will be confusing because there are some things that are exclusive to each other. In other words where you’re one, you can be the other. So for like C answer one, if you’re filing head of household. Well, that would be a zero because they’re talking about filing statuses. So you can’t be a head of household and married filing jointly at the same time. So that doesn’t actually apply to you. Then, here, here’s another exclusive one. So if you’re married filing jointly, you can not be single or married filing separately. So that part does not apply to you. So you don’t enter one for line D for that, but however, the second line could possibly apply to you. You’re married filing jointly, have only one job and your spouse does not work. However, in that case this doesn’t apply because you have a business, so that is more than one job. You have your business and then you have a job, or you have the job you’re paying yourself and your business, and then you have a profit, so that wouldn’t apply to you in this case.

Now, let’s look at this. Your wages from a second job or your spouse’s job are $1500 or less. So if you’re expecting your spouse or your profits to be less than $1500, or your wages from a second job are $1500 or less, you can enter one. In this case, we’re going to make the assumption that we do plan to make somebody, so we’ll just leave that part alone. Now, let’s move on to child tax credit. So this, remember this person in an example, this person had one child. So there’s a threshold where you won’t be able to get the child tax credit. So that’s what these thresholds are, so the higher your income, the more the credit is phased out. So the first phase out range is when your total income is less than $71,201 if you’re single or head of household, or $103,351, if you’re married filing jointly. That’s you’re filing together with your spouse. So if you’re below this threshold, you get the full credit and if you’re going to be below this threshold, then you answer four.

Now, keep in mind that this is talking about total income. So total income will be your wages, it will be your spouse’s wages, it will be profits from your business, it’ll be your interest income. Any income you have from any source, you have to add all that income together to get your total income. So, for example, if you make $2000 as wages from your business, you make $2000 as profit, so that’s $4000. Your spouse makes $2000, that’s $6000. You have some rentals that bring in $1000, so that will be $7000. So your total income is complicit of everything. So if your total income, when you add them all together, is less than $71,201, you answer four here. However, if when you add that total income together, it’s greater than $71,201 but it’s less than $179,050, if you’re single or head of household, or $103,351 to $325,850, if you’re married filing jointly. Well, your child tax credit will be phased out so at that point you enter two.

However, if your total income would be greater than that, but less than $200,000, or $400,000 which is the maximum threshold for the child tax credit. $200,000 for single and head of household and married… And $400,000 for married filing jointly. If this is you, answer one. If you’re greater than $200,000 or $400,000 when you add up all your income, you don’t get the child tax credit, so you answer zero.

So in this case, we’ll just make the assumption that we’re going to be within the first range where nothing is phased out so we’ll just answer four there. Previously, we talked about the child tax credit, that’s if you have a child under 17. What happens if your child is over 17, is in college, or you take care of a parent? So in this case, we have credit for the other dependents. So they’ve taken out the personal exemption because in that place we have a credit for the other dependents. You get $500 per person, per dependent, on the year that you’re claiming your tax return.

So just like we did for the child tax credit, there are phase-out ranges. So in this case, if you make less than $71,201 for a single or head of household, or you make $103,351 for married filing jointly, you enter one for each dependent. Now, if your income is above that threshold but less than $179,050 for a single or head of household, or $345,850 for married filing jointly, enter one for every other dependent. So what that means is, if you have two or three dependents, you enter one. If you have one, you enter a zero. If you have four, you enter two. So it’s every other. Remember, one: Zero. Two or three: One. Four: Two. Five: Two. Six: Three. So that’s how that goes.

Well, if your total income is higher than $179,050, if you are single head or of household, or $345,850, if you’re married filing jointly, enter zero. So, let’s just make the assumption we take care of a parent, and we said we’re in this first threshold, so we enter one for that parent. Then the next thing we do is we add up all the amounts. So we have one, two, six, seven. So, we enter the total of lines A through G. On H… Oh, by the way, I skipped line G, “other credits”, because mostly, for most people those are not significant credits. You could have education credit or things like that, which you could claim. Remember, the point of this is to withhold as much that is legally possible, so at the end of the year you don’t get much of a refund… Or you don’t owe taxes. So it’s either you get it now or you get it later. So it’s not like this is money that…

It’s not free money. So, basically, it’s like we’re trying to make sure we get our money during the year so at the end of the year, we’re not owing or we’re not paying. So, the other credits I kind of like to leave that as a leeway. But if you want to really claim everything that you want, you have to pull up publication 505 and fill out the worksheets from one to six to see what else you might qualify for. What I say, these are estimations. You don’t want to grab every single thing you can because what if something changes? At least, if you still have that credit, that will help you work things out. So we have this seven… If we don’t have any… If we don’t have other deductions, or we don’t have a spouse with a second income, or we don’t have a business or anything, this is where we stop. So this amount will go up here to the first page again. And we enter that amount on line five. Well, however, you as a business owner, you have to actually go further. So that will be the discussion of the next video, so stay tuned.

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By |2019-03-11T22:40:07+00:00March 11th, 2019|Tax Planning|0 Comments

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With over 16 years of accounting and finance experience, I know what it takes to make your business profitable. However, in my opinion of what really makes me qualified to work with you is my love for using my God-given gift to help people with numbers. I love difficult problems and my business is to be in the business of helping other people achieve their dream/vision/ goal in the most cost effective and productive way. I am very passionate about my clients and take their problems very personally.

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