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Estimating Taxes Ahead of Time
Old 12-09-2010, 08:06 AM   #1
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Estimating Taxes Ahead of Time

Before making my Roth conversion this year, I want a close estimate of my taxes. When you are in this situation, do you actually complete you taxes, or use a tool to estimate?

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Old 12-09-2010, 08:10 AM   #2
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My taxes are pretty simple (W-2 income, interests, dividends, capital gains, run of the mill deductions), so online tools usually do a good job of estimating my taxes.

I actually use the "TaxCaster" app from Turbotax on my iphone.

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Old 12-09-2010, 08:25 AM   #3
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Has congress settled the AMT amounts and other details? When I tried to do this in the past, the tax software was really pretty useless, as they had all these caveats about unsettled tax laws, and they always had to assume the current, even though it was understood that Congress would probably vote to change it before DEC31.

I think you really just need to convert some number a bit larger than you imagine you will be able to, and do a re-characterization early next year. It's a bit of a pain, but less than the alternative, IMO. And you can get it much more optimized this way. Simply (Complexly?) too many variables to estimate very close ahead of time.

A friend of mine made an interesting comment. He said every member of Congress should be forced to do their own and their immediate families taxes. On their own, locked in a room, no help other than the IRS docs and phone line (calling anonymously). Maybe it should be on C-SPAN, so we could watch them pull out their hair, trying to figure out what the rules that they wrote actually mean. And every tax filing would get fully audited with the errors made public and the Congressperson subject to fines and penalties and jail time. No exceptions. Maybe we would actually get tax simplification then.

And no software (OK, simple spreadsheet to do the arithmetic is allowed) - it's ludicrous that we have to buy a software program, tweaked every year right up until the the filing date to comply with these rules. It's absurd.

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Old 12-09-2010, 08:34 AM   #4
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My taxes are fairly simple as well, so I just use an excel spreadsheet and update it with current year info and applicable tax code changes. I have never used any tax software to prepare taxes so maybe I am behind the times!
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Old 12-09-2010, 08:54 AM   #5
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I like Taxcaster too. Simple, easy to make changes. Be aware tho that these tools which don't claim to be full blown software have their limitations.....e.g. Taxcaster does not take input for muni bond interest so would not calculate correctly w/ SS if you had both. You can work around some of the limitations if you are aware of them . Another issue is the QDIV vs nonqualified DIV....this one is easier. You could try it out w/ last yrs numbers and see how close you get. TurboTax® TaxCaster - Free Tax Calculator - Free Tax Estimator If you google Taxcaster, various yrs 2009, etc. come up. Select appropriate one.

Another idea is to use 2 or more of these calculators and see if they agree.

And then there is the free versions of Tax Software that are becoming available now.

My biggest uncertainty is the Dec distributions for mutual funds rather than the calculator I use.
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Old 12-09-2010, 09:02 AM   #6
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H&R Block has an online estimator. I used to use the 2009 one for clients who wanted a guesstimate without starting a file with HRB and it was very accurate for most situations.

Here's the 2010 estimator -
Tax Calculator - Tax Tools and Calculators - H&R Block

When you get to the end and see the Results click Detailed Results and you can print it.
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Old 12-09-2010, 09:25 AM   #7
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I use's calculator

1040 Tax Calculator
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Old 12-09-2010, 09:56 AM   #8
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Sue----I used to use the HR Block estimator and for some reason I don't remember started liking Taxcaster better. I just tried the Block tool there a way to go back and make a change w/o changing everything else? Taxcaster makes that easy. Also I got slightly different answer on the tax due.....about 400 higher on a tax about 6000. Don't know which one is right.

figured out that if you click the income bar when in detailed results, you can go back and edit entries w/o having to re-enter everything all over

compared Taxcaster vs HRBlock calculators vs manual calculation for same income.......I agree w/ Taxcaster and for some reason HRB is 400 higher.
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Old 12-09-2010, 10:28 AM   #9
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Originally Posted by TromboneAl View Post
Before making my Roth conversion this year, I want a close estimate of my taxes. When you are in this situation, do you actually complete you taxes, or use a tool to estimate?
I have made a complex spreadsheet with dynamic links for rates and things that will change, to map out conversions, MRDs, SS payments, interest and dividends, etc over many years into the future. Then I buy Turbo-Tax in December and see what it says. There have been few rate and rule changes betwen 2009 and 2010. I have not had to re-characterize from overshooting, but each year I have tended to fall a bit short of my twin barriers-AGI that would get my Medicare Premium increased, and top of 25% bracket.

I think once one is on Medicare, it will be a hassle to get them to re-figure the Medicare premium after a re-characterization, so best to just leave some space.

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Old 12-09-2010, 10:30 AM   #10
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For those doing this estimate for Roth conversion and also getting SS.........
I've read about filling to the top of 15% bracket and generally agree this is a reasonable strategy for many. While using the Block calculator that Sue suggested, I ran across something .......nothing really new but just a bunch of things that reminded me that you have to start from scratch and re-examine your assumptions periodically.

In the past, with high interest rates (and income) and cap gain distributions from funds, my SS has been in the saturated region where 85% of it is taxed. Because of enough yrs of that, I've become used to assuming that as a fact. I had been planning a Roth conversion based on that and filling to the top of the 15% bracket. While using the Block calculator, I didn't input any number for the Roth conversion and kept wondering why the total income didn't add up.

Eventually I realized that without the Roth conversion amount ,less than 85% of the SS was being taxed. When I put in the Roth conversion amount, by accident?, 85% of the SS was taxed as I expected. What this means is that if you are in the non-saturated region for SS, when you add more income from the Roth conversion, not only are you adding this income but more SS is being taxed. This means the effective marginal rate is higher than my case it was >25% even though I stayed within the 15% bracket. (and it can go even higher). Again nothing new here but it was a surprise bc I thought I was out that range.......I was when I examined it some yrs ago but times/circumstances change.

That may or may not affect your decision to convert but nice to be aware of.

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