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Old 01-03-2022, 07:06 AM   #21
gone traveling
 
Join Date: Aug 2020
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Quote:
Originally Posted by Slowgowing View Post
Hi -

I am constructing an Excel spreadsheet in order to estimate/guestimate future federal income taxes based on my estimated income.

As a starting point, I could use tax year 2022 brackets and the standard deduction amounts since they are known, and then adjust them by some amount or proportion for each year in the future. However, it’s not clear to me by what amount to adjust/increase them.

Clearly, this exercise is more guesswork than science because no one knows this information with certainty, but I’d like to implement something that’s seemingly reasonable.

I do understand that the current tax brackets are scheduled to revert in 2026 unless Congress makes a change – which of course, is certainly possible. Perhaps this is a foolhardy endeavor, but that’s never stopped me in the past.

So….I am seeking your guidance or suggestions. What have you done?

Thanks in advance for your thoughts and Happy New Year!
Use the RPM spreadsheet. It does exactly what you are looking for.

I coded my own version of tax brackets into my home grown retirement spreadsheet and I grow the standard deduction over time. It works well.

Income taxes are entirely forecastable using current rates. When/if rates change, change your model. You need to build sufficient fidelity into your model to account for your personal situation: types of income, deductions, etc. If TurboTax can do it so can you.
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Old 01-04-2022, 06:36 AM   #22
Dryer sheet wannabe
 
Join Date: May 2021
Posts: 13
Thanks for the responses.

I was hoping to build my Excel model to have a bit more fidelity than horse shoes and handgrenades, but given all of the other estimates/forecasts that are involved (investment performance, anticipated spending, etc.), I fully expect any model will need on-going updates.

I will certainly look into RPM as Chassis suggested.

Chassis - Out of curiosity, did you code your tax brackets using a simple 2% increase as others suggested...or...perhaps you took a more sophisticated approach?
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Old 01-04-2022, 06:54 AM   #23
Thinks s/he gets paid by the post
 
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Location: Dallas
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Historically brackets have increased by about 1% a year which is what I use in my RMD estimate worksheet.
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Old 01-04-2022, 08:23 AM   #24
gone traveling
 
Join Date: Aug 2020
Posts: 682
Quote:
Originally Posted by Slowgowing View Post
Thanks for the responses.

I was hoping to build my Excel model to have a bit more fidelity than horse shoes and handgrenades, but given all of the other estimates/forecasts that are involved (investment performance, anticipated spending, etc.), I fully expect any model will need on-going updates.

I will certainly look into RPM as Chassis suggested.

Chassis - Out of curiosity, did you code your tax brackets using a simple 2% increase as others suggested...or...perhaps you took a more sophisticated approach?
Current model has standard deduction escalation at the rate of inflation. I plan to add similar parameterization to the brackets as a next step. These adjustments/parameters are changeable and can be corrected/tuned over time.

Regarding source of income, if one assumes all income is ordinary, this would be a conservative assumption and avoids the complexity of estimating capital gains and dividend income as a fraction of total income. Or you could estimate these income sources based on your history, and tune that aspect of your model over time.
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