Archive for February, 2018

Tweaking the IRS Withholding Amounts

bucks.pngSince the IRS Withholding Calculator is still unavailable as of this writing, I bypassed it and went directly to IRS Notice 1036 (pdf) which is intended to guide employers as to how much to withhold from employee pay. This notice is a typical IRS offering which is both confusing and difficult to understand. I did manage, however, to get the info I needed to proceed with our 2018 withholding “tweaking.”

The financial entity which manages our two pension distributions treats each one as if it were your entire income, thus complicating the final calculation because we actually have several sources of retirement income. Since they are virtually complicating things, I opted out of withholding altogether from the two pensions.

We do, however, have control over the rollover IRA and its exact (to the integer percentage amount) withholding. I figured out what we are paid in each month, cross referenced it to the IRS notice above and determined what we should be sending to the IRS each month.

I have a spreadsheet that I have used in the past for withholding and modified it to determine (to the closest percentage point) what the number should be. I used the “effective tax rate” method based on the numbers I derived to allow me to adjust the withholding from the IRA. This way, I only have one place that I need to be tweaking.

I should have done this last year instead of effectively loaning the .gov interest-free $$$! :(

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The 2017 Tax Returns Filed

taxes.jpgOur Investment Consolidated 1099 forms were finally available today, so since the returns were 99.9% complete, we filed both Arizona and Federal Tax Returns online this afternoon. We were somewhat aggravated that it took so long to officially get the numbers on the proper forms, but now it’s done and we can start waiting for our refunds.

The 2017 withholding rate we used underestimated the effect of upgrading our motorhome for which larger amounts of Vehicle License Fees and 2nd home loan interest would work to our benefit. As a consequence, we overpaid into the Federal and State coffers all year.

Now, we can start to calculate and adjust the amounts to be withheld for the remainder of 2018. We have a spreadsheet that we used in the past to figure the proper withholding and will resort to it again this year. There are a couple of complications involved, however, due to the effects of the GOP Tax Reform and an increase in the IRA distribution.

Our Arizona withholding will be zero this year because we contribute to the Arizona Private Education Scholarship Fund which completely offsets our state income tax obligation. For Federal Tax, we will use an assumed effective tax rate to determine withholding. As an aside, the IRS withholding calculator is not available because of the recent tax reform bill.

Bottom line, we’re glad to have 2017 tax behind us. Now to figure out how to spend the refund!

UPDATE: 02/26/2018 Both State and Federal refunds were in the bank by the 22nd of this month. That is the fastest (approx. 10 days) that they have ever refunded the money.

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