By John W. Schoen Senior Producer
msnbc.com

Alyssa in Idaho got a nice refund on her taxes this year. That got her thinking: how can I avoid overpaying again next year?

My partner and I have decided to buy a house. We've got it picked out, the financing figured out, the whole deal. I currently claim zero deductions on my W-4 form (partner and I are not married nor file jointly). This resulted in a nice tax refund this year. I've been thinking ... maybe I won't overpay on taxes this year. Perhaps I'll claim one deduction except I'm afraid that I will end up owing the government money. I just want to come out even, but I'm not sure how buying the house will affect that. Any suggestions?
Alyssa K., Idaho

You’re on the right track. As nice as it is to get a refund on your taxes, it really means you’re lending the government money for free. Which you’re free to do, and we’re sure the government appreciates the gesture.

But if you’re buying a house, you can probably think of better ways to spend your personal “tax surplus” than Congress can. So you may need to crank back a bit on how much you’re having withheld. One place to start is the handy online calculator set up by the IRS, which is similar to the worksheet you’ll find on your W4. (For everything you ever wanted to know about figuring your W4, and then some, check out IRS Publication 919.)

As you’ve probably already found from filling out the W4 in the past, picking just the right number — not too much and not too little — is not an exact science. The questions on the form can’t anticipate everyone’s circumstances. So if you really want to nail it, try preparing an estimated return for next year. Once you’ve got all the numbers for your new house, you can include any new deductions like interest, property taxes etc. When you have a rough idea of what you’ll owe, use that to adjust your W4.

Keep in mind that you don’t have to get it exactly right. You can always go back to your employer next year and update your W4. In general, you won’t owe a penalty if your withholding covers either your total tax paid for 2005 or 90 percent of your final tax for 2006 — whichever is smaller.

And if you do undershoot on your withholding, it's not the end of the world. For underpayment penalties, see IRS Publication 505.

My boyfriend of six years and I are considering moving in together in his apartment. What are the pros and cons of being put on his lease vs. simply moving in and paying him my share of the rent?
Marie, New York city

The Pros: You’ll become an equal partner in the financial commitment for the cost of your shared housing, and you’ll be legally bound jointly to fulfill the terms of the lease.

Since it started out as “his place,” putting your name on the lease will more quickly establish it as “our” place. If you are thinking about this move as the continuation of a long-term relationship, this will also begin the process of thinking about how you jointly manage your finances. Some parts you’ll want to keep separate. But rent is a great place to start for building a joint life financially to match the other parts of your lives that have come together.

The Cons: You’ll become an equal partner in the financial commitment for the cost of your shared housing, and you’ll be legally bound jointly to fulfill the terms of the lease.

If your boyfriend decides to leave town, you’re still on the hook for the rent. By co-signing a lease, you’ll lose some of the financial independence you’ve enjoyed for the past six years. Though you’re not legally bound together by a marriage license, you’re now bound by a contract. (For better or for worse, but only until the lease expires.)

You should, of course, read the lease carefully whether or not you sign it. Some leases have specific language on subletting — which is technically what you’d be doing if you move in without co-signing the lease. Some landlords don’t like sublets — especially if the rent is below market rate — because the original leaseholder can sublet for more than the lease requires and pocket the difference.

Lease or no lease, if your financial lives haven’t already become intermingled, they soon will be. As that happens, it’s important to make sure both of you are clear on where (and how much) each of you wants to merge your finances and where you want to keep them separate. Many married couples go through the same adjustment, especially if they’ve been financially independent for some time before getting married.

Moving in together is something of a milestone, and you’ve probably already talked about what each of you thinks the change means for your relationship. But don’t forget to include your personal finances in the discussion. Do you want to split other costs besides rent? If so, just what goes in the joint “household” budget and what stays out of it? If there’s a big difference in your incomes, do you share these joint costs 50-50 or establish a split based more on how much each of you makes?

If they haven't already, money questions like these are bound to come up. And it’s probably better to have the conversation sooner rather than later.

    

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Home equity type Today +/- Chart
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