Is It Legal To Take A Lot Of Tax Exemptions?

Is it legal to take a lot of tax exemptions? It's not illegal to claim more dependants than you have because at the end of the year if you owe $3000 and you send in a check, everybody is happy. Yes. It's...

Yes. It's not illegal to claim more dependants than you have because at the end of the year if you owe $3000 and you send in a check, everybody is happy. But the problem is that people don't have that $3000 and then with penalties and interests can grow pretty quickly. But their thinking is immediate; right now they need as much money because they've got to pay bills. They've got child support to pay and they've got to put a roof over their head, and they've got to buy a car. So that's how employees get in trouble. Another way employees get in trouble (and this happens a lot of times with a divorce situation) is if one of them has a 401K. So they live off that 401K for a while, thinking that the taxes had been withheld, but they end up getting a notice from the IRS that they owe several thousand dollars because the taxes were not withheld. With a 401K, not only do you have to pay regular income taxes when you take it out, but there is also a 10% penalty for taking it out before age 59 and half.

© High Speed Ventures 2011