Dear BLR Editor,
I currently have 8 exemptions on my W-4, which I’m told, is a lot as I have only a wife and two kids.
The problem is however, that due to my business expenses, charitable contributions, mortgage interest and property taxes, I still end up with an refund exceeding $5,000 each year.
Some of my friends say I cannot go over 8 or 9 exemptions on my W-4. Is that true and/or advisable?
Editor – Hello Bentley. If you consistently receive a significant refund from the IRS on your taxes, go ahead and increase your exemptions. The truth is that there is no upper limit for exemptions.
The other myth is that exemptions are based on the number of your dependents. That is not strictly the case – other tax deductions might make it wise to increase your W-4 exemptions.
When you consistently receive large tax refunds in April, it means you are loaning he government money tax-free. Unless this is your intention, you should not do so.
Some people, with a large number of deductible expenses have had up to 20 exemptions. The most important thing is that you don’t end up seriously underpaying your taxes. If you do, not only will you be liable for penalties and interest, but the IRS may send your employer a letter setting an exemptions limit for you. Better to avoid that.
Consult with your tax adviser, but I could see you adding 2-4 exemptions without any problems. I wish you the very best.