When you are through changing, you are through. -Bruce Barton
As you know if you are a regular reader, my family has moved due to a recent job change by my wife. Goodbye Northeast. Hello (again) Midwest. This has brought huge changes to our lives. She travels much more. Mark is seeing a LOT of the kids and little of the outdoors and, since we have a much bigger house thanks to the happy coincidence of geography, we are making a local furniture store very happy.
When you make significant changes like this you need to step back and see how they effect your financial planning. Some changes are obvious; some more subtle. One obvious effect is that state taxes are different. New state, new returns to file. More subtle: State laws govern wills and trusts. Better have a quick chat with my estate planning attorney to see if we need to do anything.
With the new job has come a new paycheck. How should we think about IT for planning purposes? Well, if you work for an employer that automatically withholds taxes from each paycheck, then you have the ability to adjust how much is withheld by adjusting the exemptions on IRS Form W-4. This is a thinking process you should undertake for many significant changes such as:
* Having a child
* Getting married or divorced
* Buying or selling a home
* Number of "claimable" dependents changes
* Changes in retirement
* Changes in college savings contributions
* Change in employment
So look at last year's return. Did you receive a sizable tax refund last year? You just gave an interest-free loan to Uncle Sam. Or did you owe the IRS money? You didn’t withhold enough and you may even owe (arrgh!) a penalty. Your goal should be to strike a balance so that you receive little or no refund.
The W-4 form has instructions and a worksheet that can walk you through the exemptions, but, frankly, that can be a bit intimidating. You can find those here. Unbelievably, the IRS has a very useful tool that can help you estimate what you should claim on your W-4 so that you don’t have to guess: IRS Withholding Calculator. I've tried it and it's pretty darn useful!
Finally, the W-4 will take care of your federal tax withholding, but you should check with your employer or your HR department to see if any changes need to be made to your state withholding.
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