Estimating Income Tax

cokewithvanilla

I just got my first job and am apartment hunting. I need to prepare my budget, but am having a problem getting a good figure for taxes.

When I hand calculate the number using my tax bracket, I get one number... I go to IRS.gov and get a number almost half that... I use 1040 or any other estimators and it just goes wild. I'm getting numbers all over the place (within a certain range).

Does anyone know a proper way to estimate taxes that directly coincides with their actual paychecks? It's really hard to budget when you have a number fluctuating by thousands.

edit: I am talking about federal tax-- i'm pretty solid on state tax

punk-roc

Well, your marginal tax bracket will be different than your actual tax bracket (due to deductions and credits, etc).. so the IRS is probably closer to your actual tax.. my actual tax I pay is around 17%, yet my tax bracket is higher than that..

Is that helpful? There are a few accountants lurking on the boards that can probably chime in with more detail

steveinaz

Are you talking about the withholding each paycheck?

Your taxes are your taxes--regardless of the withholding; it just depends on wether you'd like more tax taken out each paycheck--and have a better chance of a larger return at the end of the year---OR, claim yourself as exemption, and have less taxes taken out paycheck-to-paycheck, and likely have to pay some income tax at the end of the year. (I'm assuming you're single).

Personally, when I was single, I preferred to pay higher taxes (claimed 0 exemptions), paycheck-paycheck because I like getting the big return every spring.

Big Dawg

If this is your first job, and you are looking to move out of your parents' home, I suggest you wait for your first paycheck (or even longer, if you can). Although the withholding won't be exact, it can be a good guide. You'll be surprised how many other deductions are taken from your paycheck besides taxes. Then, after accounting for food, utilities, cable, cell phone, etc., you can then calculate how much you have left. Don't spend more than about 80% of that amount if you feel it's accurate, and no more than 50% if you feel you may have some unknowns.

good luck!

inthewoods

cokewithvanilla wrote: »

Does anyone know a proper way to estimate taxes that directly coincides with their actual paychecks? It's really hard to budget when you have a number fluctuating by thousands.

W4 calculator works good... http://www.irs.gov/individuals/article/0,,id=96196,00.html

cokewithvanilla

Thanks everyone. I am not going to quote,but I am just gonna reply to everyone in one post.

Yes, it makes sense that my marginal tax bracket will be lower. I am really glad of this, too, because if this wasn't the case, I'd be living under a bridge . I am really trying to get as close to an exact figure as possible. So, if it says I get 5,800 deduction, will I simply take 5800 from my income and multiple by .25? if so, that's very high compared to all estimates (including my own) :eek:

steve, I am. But I would also like to know if I will be owing anything at the end of the year. So, I suppose I would really like to know my actual taxes, to the dollar, taken from my salary. I would like this to include medicare and the like. I can then divide this by 12 or 52.

Big Dawg, unfortunately, this job is 5 hours from my parents house. I am starting the 22nd, and need to get an apartment by then. My choices are: get a one bedroom for 730, very tiny looks like a hotel (772 sqft), or get a 2 bed for 917 that might have a little too much room, but has a much better layout.

My bills are as such:

Rent: 730 or 917
Electric: 70 or 100
Water: 30
Phone: 50
insurance: 16
Heath insur: 150
Car insurance: 75
Loans: 225
Food: 250
Gas: 90
Cat: 30
Pet Feet: 33
Gym: 30
Internet: 50

(monthly)

Problem is, if the IRS says I owe half what my estimate (and some others) say, this makes a huge difference on whether or not I get the 1 or 2 bedroom.

edit: inthewoods, the withholding calculator is the one that suggests it will be about 60% of my current estimate. It says, with your current stuff, we will take $0 from each paycheck and you will owe x. That x is really low... and how can they take nothing from my pay?! I'm getting really confused ha.

villock

You can go here http://www.irs.gov/pub/irs-pdf/p15.pdf on page 38 is for single taxpayers. For Social Security take your gross and multiply by 6.2% or .062. And for Medicare take your gross and multiply by 1.45% or .0145.

So if you make 1,000.00 gross per week and you claim 0 exemptions:

Social Security 62.00
Medicare 14.50
Federal 167.00

Total 243.50

polrbehr

cokewithvanilla wrote: »

My bills are as such:

Rent: 730 or 917
Electric: 70 or 100
Water: 30
Phone: 50
insurance: 16
Heath insur: 150
Car insurance: 75
Loans: 225
Food: 250
Gas: 90
Cat: 30
Pet Feet: 33
Gym: 30
Internet: 50
(monthly)

Problem is, if the IRS says I owe half what my estimate (and some others) say, this makes a huge difference on whether or not I get the 1 or 2 bedroom.

You didn't ask, but I am going to suggest it anyway - start your own small business ASAP. The items above (which I've hi-lighted) are all allowable deductions on your taxes. You can probably claim some of your food bills as well, like if you eat at restaurants.

Whatever you decide to claim during the year, ideally you want to wind up as close to zero as possible in April ... unless of course you don't mind giving Uncle an interest-free loan? But hey, I am not knocking large refunds, if you can do without week to week, fine, they make for a nice surprise.

cokewithvanilla

Thanks again everyone. With all my calculations, it looks like I will probably have 25% left w. the 2 bed and 33 with the one.... I guess, at this point, I have to make the decision of where I want my money to go.

steveinaz

cokewithvanilla wrote: »

Problem is, if the IRS says I owe half what my estimate (and some others) say, this makes a huge difference on whether or not I get the 1 or 2 bedroom.

In all honesty, if the scenario cuts it that close---get the 1 bedroom. Seriously. I'm not seeing a "Savings" category---don't want to sound like an old ****, but here at Club Polk, we look out for each other, right? Gotta pay yourself first!

cokewithvanilla

steveinaz wrote: »

In all honesty, if the scenario cuts it that close---get the 1 bedroom. Seriously. I'm not seeing a "Savings" category---don't want to sound like an old ****, but here at Club Polk, we look out for each other, right? Gotta pay yourself first!

You're right... I did not put a savings category, just an 'extra money' category. which is around 25% for the 2 bed. I tend to agree with you though.

Do you think it's worth the extra 8% to take the 2 bed? I'm kinda leaning towards the 1 bed (though it is small) cause it would be extra cash in my pocket .



if you care :P

villock

I would go with the 1 bedroom. You are single and young. Try to save as much money as you can. Also you didn't say if your company will be offering a 401K. And if they are, which I am sure that everyone here would suggest to take advantage of, that is another deduction out of your paycheck.

SDA1C

If you figure 35% of your gross you will be pretty darned close. If you live in a state that has sales tax figure 45% of gross. That will give you a number you can actually work with. Careful with the overtime too. Lots of tax tricks with overtime and 1099's. I once had a job that paid $84 more for 39 hours than it did for 40! go figure eh?

So many times I see tax calculations that don't take into account the sales taxes for everyday items. You figure 300 for food and its actually 330. 150 for clothes and it turns out 118. For a new budget those little 10's and 20's add up quick.

Most importantly though is the savings as stated. Just because the numbers work out on paper doesn't meant that's how its going to go in real life. the bigger the cushion..the better the. You get my idea. in this economy save every dime you can and live WELL UNDER your means. Don't get caught in the credit card scam. A big ones coming soon and it ain't gonna be pretty.

Good Luck and have fun at your new job!

1C

steveinaz

That place is plenty big for the 1 bedroom option. Get the 1 bed, save a little more money.

My wife & I made a pact on home ownership---we'd rather own our home, than have our home own us. IOW, always sway to the conservative side, this way you won't end up frustrated when you have minmal money for other things you enjoy. The "wow" factor wears off pretty damn quick, then you're left to pay the bill.

mudwrx

cokewithvanilla wrote: »

Pet Feet: 33

??????????????????

steveinaz

I wasn't gonna ask...LOL

cokewithvanilla

steveinaz wrote: »

I wasn't gonna ask...LOL

lol.... I meant 'pet fee'

looks like I'll go with the one bedroom. that complex is gonna be pissed at me, I had them hold me a 2br yesterday :eek:

Oh well.

punk-roc

do what's right for you.. and budget out a set amount of money to save (actually save) each month..

don't just save "whatever is left over" - save that 8% difference between rents!!

tonyb

I didn't see any going out and party money in your budget. All work and no play can get pretty dull....quick. Take the 1 bedroom, it's all you need for the moment besides, time will go by and you'll get a better feel for your security in your job and your expenses. You could always move up to the 2 bed. later.

Big Dawg

The one bedroom is the right choice. Save some money. In a year, if you decide that you have enough money to rent an extra room, then move. More rooms is more to clean, more to fill with clutter.

inthewoods

Go with the cheapest option, and save money.... debt sucks

cokewithvanilla wrote: »

edit: inthewoods, the withholding calculator is the one that suggests it will be about 60% of my current estimate. It says, with your current stuff, we will take $0 from each paycheck and you will owe x. That x is really low... and how can they take nothing from my pay?! I'm getting really confused ha.

If you entered your numbers correctly then trust it... I've been using the W4 calculator to make sure I don't over pay my taxes and it's been spot on.

Yes, if you have already made your tax requirement for the year the W4 calculator will have you up your withholding to a level that will not take any more federal taxes out of the paycheck.

I had a withholding of 14 for the last part of 2010 and never had any issues with the Feds.

cokewithvanilla

Sounds good. We'll see what happens. I called the apartment people and told them i'll take the one bedroom. They, of course, said they will contact the other person who was dealing with me and they will get back to me tomorrow.

Hopefully you are right on the taxes, cause that would be sweet. I would have a decent chunk of excess money every month, especially with the 1br... and that's never a bad thing.