Use of tax software for planning

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LFremont
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Use of tax software for planning

Post by LFremont »

I am retired and have been living pretty much on SS and payments from a retirement plan. I have reached the age now where RMDs are necessary and, I plan to begin drawing on my savings, some of which are tax deferred, some not. Things got complicated really quick, with various levels of taxation of SS, etc. I'm wondering if tax software, particularly Turbo Tax might be an answer to dealing with the complexity of tax planning. I'm wondering if it is useful for this purpose or whether I need to find a financial consultant to help me out. What are other peoples experience? Is the software helpful or are there better ways of addressing this?
LFremont
livesoft
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Re: Use of tax software for planning

Post by livesoft »

I use TurboTax every year to calculate "what if" scenarios of future tax years, so yes, the software is helpful.
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simpsonlang
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Re: Use of tax software for planning

Post by simpsonlang »

Esplanner Pro can map that out but what might be more useful in your situation is http://maximizemysocialsecurity.com made by the same person. I personally use Esplanner Pro and think it's useful to get a rough idea on future years but have no experience with the maximizesocialsecurity site so if you find it useful I would love to know.
JW-Retired
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Re: Use of tax software for planning

Post by JW-Retired »

LFremont wrote: Is the software helpful or are there better ways of addressing this?
I can't think of anything better. We use tax software (in our case HR Block/aka TaxCut) all the time for this purpose. It's going to be all set up from doing your 2013 income tax already so you can just save that as a WhatIf-2014 return and then make your RMD and/or other changes to see their effect.
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Sheepdog
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Re: Use of tax software for planning

Post by Sheepdog »

I also use tax software for tax planning. I will check it occasionally during the year. My goal is as little tax as possible....none, if practical. My income comes from SS and IRAs. I will take from the IRAs until taxes would be due, then I will take from my Roths, if necessary. For over 10 years, tax software makes those calculations for me.
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Billionaire
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Re: Use of tax software for planning

Post by Billionaire »

Within a few weeks/months after I file my 2013 returns using Turbo Tax, I will start a new return(with new name such as EST - 2014) with estimated amounts for 2014 taxes. I usually wait for a quarter-end and extend out W-2 earnings, etc. It has proven to be very beneficial. In 2013 I only owe small amounts for Fed and State due to my estimating skills. Even if the tax rates change from year to year, it shouldn't result in that big of a difference. If you use this method, just make sure you are always working on your estimated version when updating it.
montanagirl
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Re: Use of tax software for planning

Post by montanagirl »

JW Nearly Retired wrote:
LFremont wrote: Is the software helpful or are there better ways of addressing this?
I can't think of anything better. We use tax software (in our case HR Block/aka TaxCut) all the time for this purpose. It's going to be all set up from doing your 2013 income tax already so you can just save that as a WhatIf-2014 return and then make your RMD and/or other changes to see their effect.
JW
Do you use a special version or will any version do this? I'm thinking about doing some Roth conversions this year.
JW-Retired
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Re: Use of tax software for planning

Post by JW-Retired »

caroljm36 wrote:
JW Nearly Retired wrote:
LFremont wrote: Is the software helpful or are there better ways of addressing this?
I can't think of anything better. We use tax software (in our case HR Block/aka TaxCut) all the time for this purpose. It's going to be all set up from doing your 2013 income tax already so you can just save that as a WhatIf-2014 return and then make your RMD and/or other changes to see their effect.
JW
Do you use a special version or will any version do this? I'm thinking about doing some Roth conversions this year.
Any version that will allow you to do more than one return will do this. I use the "deluxe" version of H&RB at Home.

I haven't used TurboTax for many years but I'm fairly sure you can do multiple returns with that too.
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Hexdump
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Re: Use of tax software for planning

Post by Hexdump »

simpsonlang wrote:Esplanner Pro can map that out but what might be more useful in your situation is http://maximizemysocialsecurity.com made by the same person. I personally use Esplanner Pro and think it's useful to get a rough idea on future years but have no experience with the maximizesocialsecurity site so if you find it useful I would love to know.
The maximize site looks especially helpful for our situation.
It says that it can help you make your decision as to when to take social security as a widow, early, etc.
My wife is 17 years my junior and her opinion on taking her social security is to take it ASAP. Maybe I can get her to take an interest in this site.
I am going to sign up and see what it says.

Hmmm, there might be a discount code somewhere.
Does anyone know of one ?

thanks

Kind of a hi-jack but this is one of the best apps I have seen in a long time. If appropriate I will start its own thread.
It gave me the answers that I was looking for and I was very impressed.
Typically, apps like this want past earning records to be entered either manually or by providing access to the SSA records.
This app works differently and is very slick.
It has you sign on to the SSA site, go to the earnings page, and CTL-C it. (Copy the whole thing to the clipboard). Not just the numbers, but the column headers, logos, ads, the whole thing.
Then you paste it into the Maximize site and it parses out the numbers it wants.
Very very kewl.
Last edited by Hexdump on Sat Mar 01, 2014 12:58 pm, edited 1 time in total.
snowman
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Re: Use of tax software for planning

Post by snowman »

I think it's the best planning tool available - I use TT every year to do just that. I am self employed and my income varies widely. I have CPA doing my business taxes, but I do our personal taxes myself. Here is what I do, but you can certainly alter this approach to fit your specific needs.

As soon as my taxes are filed for say 2012 tax year, I start a new file for 2013 in early 2013. I actually create multiple files for "what-if" scenarios, depending on what I expect to happen in 2013-2015 on both sides - business and personal. By mid-year, I have somewhat better idea how the year is shaping up. Heading into 4th quarter, I discuss things with my business CPA, especially when it comes to deductions, depreciation, purchases, etc. Different scenarios have different affects on personal taxes. In November, as 2013 TT becomes available, I purchase it and transfer all 2012 TT files into 2013 TT. December is the month where I spend most of my time on taxes - multiple files become one, we pick the best overall option, and make final business purchases/contributions before year end.

On January 1st, 2014 our personal taxes for 2013 are essentially done. We have until April 15th, 2014 to file electronically. However, as you might have guessed, by this time I already have created new file for 2014 tax year where I track my YTD income, deductions, shareholder distributions, and federal/state withholding. And the cycle continues.

Not only does this process allow you to plan, it allows you to be in control of your taxes, rather than the other way around. It also eliminates many mistakes people make when trying to file their taxes at the last minute, usually under certain amount of stress (been there myself many years ago). Finally, you will learn new ways to approach issues specific to your personal situation (RMD, SS, etc.), saving even more money in the future. Essentially, you could use the software for ballpark long-term planning purposes, say 10-20 years down the road.
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frugaltype
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Re: Use of tax software for planning

Post by frugaltype »

LFremont wrote:I am retired and have been living pretty much on SS and payments from a retirement plan. I have reached the age now where RMDs are necessary and, I plan to begin drawing on my savings, some of which are tax deferred, some not. Things got complicated really quick, with various levels of taxation of SS, etc. I'm wondering if tax software, particularly Turbo Tax might be an answer to dealing with the complexity of tax planning. I'm wondering if it is useful for this purpose or whether I need to find a financial consultant to help me out. What are other peoples experience? Is the software helpful or are there better ways of addressing this?
I live on social security income, earnings from my taxable savings, and break into the taxable principal as necessary. So far I have left the IRAs alone and plan to do so except for the RMDs.

After I've finished my taxes, when form 8606 calculations are still firmly in my brain, I do projections for the next year depending on whether I do IRA conversions of various amounts. I just make a big table with a column for each conversion amount and now also the required minimum distribution (RMD), which I will start this year. I incorporate both federal and state tax effects.

Seeing the numbers in front of me gives me a good handle on what is going on. In particular, it convinced me that my plan to get a part time job (low paying but interesting, and hey, money is money) was financially unfeasible since it would impact my social security too much with taxes.
LifeIsGood
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Re: Use of tax software for planning

Post by LifeIsGood »

If you don't want to use TurboTax or other tax software, this Excel template is pretty useful - http://www.taxvisor.com/taxes/
aquifer
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Re: Use of tax software for planning

Post by aquifer »

JW Nearly Retired wrote:
caroljm36 wrote:
JW Nearly Retired wrote:
LFremont wrote: Is the software helpful or are there better ways of addressing this?
I can't think of anything better. We use tax software (in our case HR Block/aka TaxCut) all the time for this purpose. It's going to be all set up from doing your 2013 income tax already so you can just save that as a WhatIf-2014 return and then make your RMD and/or other changes to see their effect.
JW
Do you use a special version or will any version do this? I'm thinking about doing some Roth conversions this year.
Any version that will allow you to do more than one return will do this. I use the "deluxe" version of H&RB at Home.

I haven't used TurboTax for many years but I'm fairly sure you can do multiple returns with that too.
JW
I have used the online version of H&R Block at Home for several years, including the 2013 tax return I recently completed. I don't think the online version supports more than one return. What options do I have for running scenarios for 2014? I'm guessing if I buy the download version (2013) to run various scenarios, I will have to buy it again for 2014.

Any advice will be appreciated. Thank you
JW-Retired
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Re: Use of tax software for planning

Post by JW-Retired »

aquifer wrote:
I have used the online version of H&R Block at Home for several years, including the 2013 tax return I recently completed. I don't think the online version supports more than one return. What options do I have for running scenarios for 2014? I'm guessing if I buy the download version (2013) to run various scenarios, I will have to buy it again for 2014.

Any advice will be appreciated. Thank you
My advice would be to spend $25 and get a 2013 download version now so you can run scenarios all year. You might learn something, and if you do this gives you ample time to take some action. Plus you will feel liberated. :beer
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emkute
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Re: Use of tax software for planning

Post by emkute »

I also use TurboTax to project for the following tax year. When the tax law is stable it works well. If there are changes in the tax law that impact the future tax year and my circumstances, then I need to make adjustments.
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etarini
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Re: Use of tax software for planning

Post by etarini »

I'm surprised no one's mentioned TaxCaster. It's much faster and easier to use than TurboTax (which I use for my taxes). Rather than plug in every little thing, you just group your income into different taxable buckets: 1) qualified dividends and long term capital gains; 2) ordinary income, which is your short term capital gains, wages, savings interest, bond interest, IRA withdrawals, etc., then you plug in your Social Security and it figures out the amount that's taxable. It allows you to see things like how much you can take out of your IRA (or convert to a Roth) without bumping yourself into a higher tax bracket (hint: it helps to look up the tax brackets). I've figured out my expected Roth conversions for the first 5 years I'll be retired (before the RMDs start). For starters, you can plug in your current tax information, grouped as described, to get you thinking of your income as buckets that are taxed differently, instead of scribbles on tax forms. I make screenshots of different scenarios and save the pictures.

TaxCaster
https://turbotax.intuit.com/tax-tools/c ... taxcaster/

Eric
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Re: Use of tax software for planning

Post by Retread »

I do my tax return on TurboTax and then save an additional copy as a pro forma return for the following year. I then go in and make any changes for the current year and modify it during the year as things change. It won't be precise because of changes in tax rates, personal exemptions and the like, but it will give you a pretty good idea of your tax liability for the coming year.
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PaddyMac
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Re: Use of tax software for planning

Post by PaddyMac »

I like to see everything spread out on one page, so I built a live version of our tax return in Numbers (Apple's spreadsheet). I made separate tables for each form, and connected them all to the 1040 Table. It was very educational in understanding where deductions are made, esp. with Schedule C income and figuring out what the max contributions could be to our SEP-IRAs.

One table is the IRS Tax Table, so I can see at a glance how earning $1 more kicks us into the 25% tax bracket - and we have to pay 15% on dividends etc. (Time to go shopping if so...)

As soon as a new year starts, I duplicate the spreadsheet, reset a few numbers, and start again. Very useful for calculating estimated taxes too, as well as playing what ifs with income & expenses.

I don't want to put that into TurboTax as I just can't visualize it like I can on one page. (Probably why I still prefer analog synthesizers with knobs over a digital synthesizer with a single LCD...)
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