Taxes: Preparing for 2008

Being the end of the year, it’s time to start thinking about taxes…

In some ways, I’m looking very forward to February when we’ll file our taxes and get our nice big refund like we do most years but right now, I’m looking to change my filing status for 2008 on my Form W-4 so that I don’t have so much taken out of my regular paycheck.

In the past, I’ve filed single with zero exemptions, with an additional $50 taken out of each paycheck. This was due to the fact that I was earning more than $1000 per month from the hockey team without having taxes taken out so I was trying to cover that through overpaying from my full-time job. It worked out, or more accurately, I still over paid because I’ve received a large refund each February shortly after I filed my return.

But with that job done and gone now, it’s time to reassess things for 2008.

PayCheckCity.com has a nifty calculator, and one that I’ve been seeking for a long time, that calculates what your net pay will be based on how you file. Best of all, for me, it was accurate to within $0.74 for the 2007 tax year.

I plugged in numbers for 6 different scenarios for the 2008 tax year just to see how each change would affect my bottom line — the net pay that I’d take home.

Filing single, married, zero exemptions, one exemption, two exemptions, 10% for 401k, maxed out 401k, that sort of thing…

I settled on the most conservative option (because I still have a fear of owing money to the IRS) by switching my federal filing status to married (from single), and switched from zero to one for the federal exemptions.

I also maxed out my 401k. It was just under 10% — as of my next paycheck, it will be 15%.

Bottom line? Well, it’s one of those wacky scenarios where by saving more, I’m giving myself a raise.

My net pay increases $85.78.

It’s not a huge increase, but the 401k increase is quite large.

Best of all, it’s not even 2008 and I can already cross off one of my goals for the year. How about that?