Exemptions are claimed on your Form 1040 Tax Return. You are allowed one exemption for yourself, one for your spouse, and one for each qualifying dependent.

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Presentation transcript:

Exemptions are claimed on your Form 1040 Tax Return. You are allowed one exemption for yourself, one for your spouse, and one for each qualifying dependent Allowances are claimed on your Form W4. The purpose of Form W-4 is to assist your employer with estimating the appropriate amount to withhold from your paycheck Exemptions vs Withholding Allowances

6 6 For Educational and Illustrative Purposes only

Pumping Up Your Take-Home Pay This table shows APPROXIMATELY, how much a family earning $70,000/year, filing MFJ, with 3 children claiming ZERO allowances on their Form W-4 will give to the GOVERNMENT…interest free For Educational and Illustrative Purposes only W4 with 0 allowances = $694/month =$8,328 Per Year

Minimize Taxes Strategy Correct Tax Withholding Business Tax Deductions Tax Record Keeping Software (audit proof your business)

Example based on a married couple filing jointly with three children COUPLE # 1COUPLE # 2COUPLE # 3 Primary Job$70,000 Primary Job$70,000Primary Job$70,000 *1040 Deductions-$32,600Part-Time Job$12,000Part-Time Business$12,000 Total Income$82,000Total Income$82,000 *Total 1040 Deductions-$32,600*Total 1040 Deductions-$32,600 $49,400 Total Business Deductions-$25,000 TAXABLE INCOME$37,400TAXABLE INCOME$49,400TAXABLE INCOME$24,400 *Total 1040 Deductions include a Standard Deduction of $12,600 + $20,000 ($4,000 x 5 exemption) $32,600. These numbers change annually. ADDITIONAL DEDUCTIONS FROM HOME-BASED BUSINESS Car/Truck$5,475Wages$4,700Business Gifts$25 Communication$1,500Medical Reimbursement$750General Business Expenses$1,000 Meals$2,000Travel$2,050Auto Interest$500 Entertainment$1,500Depreciation$1,000Tax Deductible Investments$4,500 Business Tax Deduction Advantage W-2 Employees vs Home-Based Business Owners For Educational and Illustrative Purposes only

Annual Mortgage $1,775($21,300) – (Interest ($14,000) / Taxes ($2,500) = $16,500 Tithes = $2,000 Business Income $12,000 Charity = $499 - Business Expenses $25,000 = $18,999 = ($13,000)

Pumping Up Your Take-Home Pay This table shows APPROXIMATELY, how much a family earning $70,000/year, filing MFJ, with 3 children paychecks will INCREASE with each extra allowance they claim on their Form W4. For Educational and Illustrative Purposes only Old W4 (0 allowances ) = $694 New W4 (16 allowances) = $0 $50 x 16 allowance = $800/ Month Pay Increase of $8,328 Per Year= $694 They will get their entire $694 back/month!

$500 per month x 12 = $6,000 Savings per year Sample Paystub