A Kick From Uncle Sam

I was bored at lunch the other day, so I estimated/calculated our 2008 tax liability (I literally completed all the forms by hand, in pencil with estimated numbers, using the 2006 tax tables and contribution/deduction limits.) The end result was that Mike and I will owe the IRS some money in spring of 2009 if we don't make some adjustments to withholding now... of course this depends on the following:
1) Income for both of us remains flat - unlikely, as we both work places with annual cost-of-living raises and additional increases available for performance
2) Pre-tax deductions remaining flat - again unlikely, as health insurance always goes up at least a little bit and I always increase Mike's 401K deferral at the beginning of the year, and again in April when his raise goes into effect. I probably should do the same for my IRA contributions.
3) We don't have a baby in 2008 - may or may not happen. We're going to start trying to get pregnant in early 2008. Realistically, we'll probaby have a 2009 baby if we don't hit a home run in the first couple of months of the year.
4) Tax rates remain the same - who knows, this is up to Congress. The tables should remain pretty constant, however, the amount for IRA deductions should go up, and the personal exemption amounts usually increase a little as well.

Based on my number crunching, with no changes, we will owe around $400. In order to change that I either need to have $400 more withheld from our paychecks for federal withholding OR we need to make about $1500 less for taxable income. I don't like the idea of additional withholding - I'm already being withheld as single with no exemptions. Mike is withheld as married with 2 exemptions. That describes our tax situation. I don't want to give Uncle Sam more of my money.

Which leaves me with making less taxable income. Conveniently, I can decrease our taxable income by saving more for retirement. I went out an increased Mike's 401K deferral another percentage this morning. That extra bump means another 600 a year will be tax exempt. Which leaves me with another $900 to decrease the income by - I'm thinking I have no choice but to increase my IRA contributions (which is conveniently in line with my goals anyway.)

All things considered, I'm rather impressed with my ability to save an additional $1500 for retirement for the year in order to avoid paying $400 in taxes. It almost makes me wonder if they set the system up like that on purpose to make my generation be responsible for our own retirements since social security likely won't exist for us. And even if that is the case, most of my generation missed the memo, because they'd decide to just pay the extra $400 in taxes and spend the remaining $1100 on themselves today.