20 Children or 2?

Today TaxMama® hears from BlueSage in the TaxQuips Forum with this question. “Is it better to declare 20 children and then store the tax one would pay in an investment account, and use that money to pay taxes at year end? Or is it better to declare the right amount of children, pay as you go, and maybe get a refund?



Dear Blue,

That’s a good question.

In the 1980s, when interest rates on bank accounts were typically 5% + a free toaster, and money market accounts were paying 20%, I would have said – yes, keep the money invested and pay it later.

Today, when banks and money market accounts are paying about one tenth of a percent to 1% and typical rates of returns on investment accounts tend to be 2% – 3%, I would say – use the correct number of dependents and try to break even or to owe a hundred dollars or so.

And remember, you can find answers to all kinds of questions about dependents, exemptions and other tax and business issues, free. Where? Where else? At www.TaxMama.com.

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