Question about FIRECalc

[freddyw]

I probably missed it in the details but how does the FIRECalc formula take into consideration state and federal taxes? If it doesn't, then are we to "estimate" them when inputting our expenses into the questionaire? How have you handled taxes in accurately inputting your expenses into the calculator?

 

[Coach]

Hi freddy.

You are correct, you need to include your taxes in your estimate of annual expenditures.

Quite a few folks work up a fake return in TurboTax/TaxCut/TaxAct to try to estimate taxes. Personally I just figure on 20% -- that's probably way high for single with annual expenses of $50K, but it gives me a little margin of error.

Coach

 

[freddyw]

Question regarding FIRECalc

Thanks Coach for the quick reply! Most helpful.

 

[youbet]

Hi freddy.

You are correct, you need to include your taxes in your estimate of annual expenditures.

Quite a few folks work up a fake return in TurboTax/TaxCut/TaxAct to try to estimate taxes. Personally I just figure on 20% -- that's probably way high for single with annual expenses of $50K, but it gives me a little margin of error.

Coach

You might be better off estimating your taxes in terms of anticipated income rather than expenses. For example, if your expenses are $50K as you hypothesized, and you acquire those funds through earned income, you are in the 15% fed tax bracket. If my expenses are $50K and I acquire the money by digging it up from the back yard where I have it buried, I have no income and no fed taxes, despite our expenses being exactly the same.

An extreme example, but just to make the point.

 

[youbet]

If it doesn't, then are we to "estimate" them when inputting our expenses into the questionaire?

As Coach indicated........ YES!