Exemptions vs Withholding Allowances
• Exemptions are claimed on your Form 1040
Tax Return. You are allowed one exemption
for yourself, one for your spouse, and one for
each qualifying dependent
• Allowances are claimed on your Form W4.
The purpose of Form W-4 is to assist your
employer with estimating the appropriate
amount to withhold from your paycheck
Exemptions vs Withholding Allowances
For Educational and Illustrative Purposes only
For Educational and Illustrative Purposes only
Pumping Up Your Take-Home Pay
This table shows APPROXIMATELY, how much a family
earning $70,000/year, filing MFJ, with 3 children claiming
ZERO allowances on their Form W-4 will give to the
GOVERNMENT…interest free
Marital Status
Salary
Approximate
Monthly Value of each
Withholding Allowance
Single
Married
Up to $25,350
Up to $42,350
$50
Single
Married
$ 25,350 to $ 61,400
$ 42,350 to $102,300
$50
Single
Married
$ 61,400 to $128,100
$102,300 to $155,950
$83
W4 with 0 allowances
= $694/month
=$8,328 Per Year
For Educational and Illustrative Purposes only
Minimize Taxes Strategy
• Correct Tax Withholding
• Business Tax Deductions
• Tax Record Keeping Software
(audit proof your business)
Business Tax Deduction Advantage
W-2 Employees vs Home-Based Business Owners
Example based on a married couple filing jointly with three children
COUPLE # 1
COUPLE # 2
COUPLE # 3
Primary Job
$70,000
Primary Job
$70,000
Primary Job
$70,000
*1040 Deductions
-$32,600
Part-Time Job
$12,000
Part-Time Business
$12,000
Total Income
$82,000
Total Income
$82,000
*Total 1040 Deductions
-$32,600 *Total 1040 Deductions
-$32,600
$49,400
TAXABLE INCOME
$37,400
TAXABLE INCOME
$49,400
Total Business Deductions
-$25,000
TAXABLE INCOME
$24,400
*Total 1040 Deductions include a Standard Deduction of $12,600 + $20,000 ($4,000 x 5 exemption) $32,600.
These numbers change annually.
ADDITIONAL DEDUCTIONS FROM HOME-BASED BUSINESS
Car/Truck
Communication
Meals
Entertainment
$5,475
$1,500
$2,000
$1,500
Wages
Medical Reimbursement
Travel
Depreciation
$4,700
$750
$2,050
$1,000
Business Gifts
General Business Expenses
Auto Interest
Tax Deductible Investments
$25
$1,000
$500
$4,500
For Educational and Illustrative Purposes only
Annual Mortgage $1,775($21,300) – (Interest ($14,000) / Taxes ($2,500) = $16,500
Tithes = $2,000
Business Income
$12,000
Charity =
$499
- Business Expenses $25,000
= $18,999
= ($13,000)
Pumping Up Your Take-Home Pay
This table shows APPROXIMATELY, how much a family
earning $70,000/year, filing MFJ, with 3 children paychecks
will INCREASE with each extra allowance they claim on their
Form W4.
Marital Status
Salary
Approximate
Monthly Value of each
Withholding Allowance
Old W4 (0 allowances ) = $694
New W4 (16 allowances) = $0
Single
Married
Up to $25,350
Up to $42,350
$50
Single
Married
$ 25,350 to $ 61,400
$ 42,350 to $102,300
$50
$50 x 16 allowance
= $800/ Month
Single
Married
$ 61,400 to $128,100
$102,300 to $155,950
$83
Pay Increase of
$8,328 Per Year= $694
They will get their entire
$694 back/month!
For Educational and Illustrative Purposes only
Sample Paystub
$500 per month x 12 = $6,000 Savings per year