How many dependents do you claim on your taxes? I’m not talking the once a year tax-preparation, but the daily or weekly or biweekly taxes that are deducted from your paycheck.
Most people across the country will claim the same number of dependents that they do on their yearly tax form. What this is supposed to do is remove enough tax so that when you file your income taxes for the year you’ll either have paid everything that you owe or will either owe a little bit more or get a very small refund.
What some people do is claim fewer dependents on their paycheck so that more money is taken out at every pay period. What this does is guarantees them a refund when their taxes are done, and many people plan around that refund. However, it might not be the best use of their money. Let me explain.
Getting a refund from the government is nice. However, by taking more money out of your check it’s the government that gets to use that extra money to build interest on than you. If you have no problems with the government using your extra money then that’s fine. But if you’d like to use that extra money you might think about claiming one less dependent and then rolling that money over into some kind of investment. Not only would you be growing money for yourself, but because you’re investing it you get that extra bit tax-free for a while, which means you won’t have to pay much more on your yearly taxes, if you have to pay anything at all.
Did you know that you can claim anywhere up to nine dependents for your pay checks whether you have that many dependents or not? This is not a recommendation by the way, but it’s something you should probably know.
Every once in a while if you need a little bit of extra cash, it might not hurt to look into claiming more dependents for a pay period or two. What you’re doing in essence is borrowing against yourself instead of having to take out a loan or asking someone else for money. If you claim 9, for instance, you might not have any taxes taken out of your check or very little, and you can roll that money into something else. You could even roll it over into some kind of investing, but the tax amount that you’ll owe on it at the end of the year will still be higher than what you might want to deal with if you decided to do it more than a couple of pay periods.
That’s the main thing you needs to think about if you decide to claim more dependents than you actually have. You will still owe the government its money, and if you don’t plan for that then when you do your taxes at the end of the year you might be shocked to find out how much money you owe. Of course you could probably keep doing the same thing and borrowing against yourself, but that’s not a wise thing to do. Still, if you ended up having to make a deal with the government to pay back outstanding taxes, it will cost you a lot less than the interest on a credit card.
This is just something to think about if you’re ever in a spot where you need a little bit more money, or maybe want to take some of the money and invest it so that you’re making money rather than allowing the government to make money off of you. Of course you’ll want to talk to your accountant or money manager to see how this type of thing will work for you if you’re going to invest it, as well as talking to your accountant if you’re planning on upping your dependents for a short period of time so you can be warned as to around how much that might end up costing you if you don’t catch back up later on.
