So apparently you can NOT completely stop having Federal Income Taxes withheld from your paycheck as I had ASSumed from setting up my Estimated Quarterly Taxes through TurboTax. Hey, what do want from a Moron. I’ve been advised that you can increase your personal exemptions on your W-4 to a seemingly outrageous number (like 10 or 13) to greatly reduce the amount of federal taxes withhled but there are penalties for stopping the withholdings all together.

I had already planned to meet with a CPA after tax season is over to review my recently filed return to see if an amended return is necessary, get professioanl advice on how to handle my taxes the rest of this year, and have my taxes done by a professioanl from now on…this latest confusion only solidifies my decision.

For a few hundred dollars a year, I no longer have to waste hours of my time filing my taxes and, even more important, I can relax knowing that they were done right and I’ve minimized the amount of My Money that the government can waste.

Well, Monday I received my K-1 Statement from our company accountant and was able to finish my tax return and file electronically through TurboTax that night. The next day I received a notice that my refund will be direct deposited into my checking account on Friday March 20th.

Also, I have decided to stop having federal income tax withheld from my monthly paychecks and instead I will begin paying Estimated Taxes quarterly. Because I had federal income taxes withheld the first 2 months of the year, the total tax to be divided into the four quarterly payments was significantly reduced. So now when I get paid each month I will have to put aside a specific amount in a easily accessible savings account so that each time my quarterly payment is due the money will be there. Additionally, because my quarterly payments were reduced the amount I will have to put aside each month is much less than the taxes I was having withheld freeing up additional cash for debt reduction.

Between getting my taxes straightened out so that I’m not giving Uncle Sam a large tax free loan throughout the year, trying to stick to a budget, and reigning our expenses, I finally feel like I’m starting to get control of my finances.

IRS Witholding Calculator

February 25, 2009

I completed my taxes using TurboTax as soon as I received my W-2 a month ago, but I haven’t been able to file my taxes as I haven’t received my K-1 statement for my dividend distributions as a principal in an S-Corporation. So I am impatiently waiting to file for my refund. In the meantime, I visited the IRS website andused the IRS Withholding Calculator to determine the correct number of exemptions to claim on my W-4 so that next year I am not sitting around waiting on such a significant refund.