I would like to know how many allowances I can legally claim on my W-4 Form to get closer to zero refund or liability. Alternatively, I would like to know what else I can do to keep more of my paycheck: I am single, no dependents, no property, no business. I do help my mother with her living expenses, but cannot yet claim her as a dependent. I do re-pay student loans, contribute to a 401(K), and a Roth IRA. This year I will buy stocks. Can I legally claim 5 allowances on my W-4, or am I only able to claim 1 or 2?

ANSWER

The BIDaWIZ Team's Answer:

You can legally claim any number of allowances for withholding tax purposes. Having said that, if you claim too many allowances and thus do not pay enough withholding taxes during the year, you may be subject to under-withholding penalties. Have you tried the withholding calculator here to determine the appropriate number of withholding to claim? This is referenced in IRS Publication 505.

Please note that you can deduct your student loan interest payments. This will reduce your taxable income.

Please note that a Roth IRA (while a great retirement planning account) will not reduce your taxable income now. You may want to contribute a traditional IRA if you're most concerned with reducing your taxable income now. Do you max your 401(K) contributions at $17,500?

What about your medical expenses? Do you contribute to a Flexible Spending Account -- that will lower your taxable income.

Also, how much do you remit in sales taxes each year?

References: IRS Publication 505; IRC Section 151
State: Maryland