Forecasting taxes

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
Topic Author
28fe6
Posts: 451
Joined: Wed Jan 03, 2018 9:01 am

Forecasting taxes

Post by 28fe6 » Sun Dec 01, 2019 8:44 pm

I hear on this board all the time about people who use tax software to "project" their tax liability, and therefore predict how much refund they will get, and/or how much Roth conversion they should do, etc.

I would like to do this sort of thing for two reasons. One reason is to determine how much charitable giving to do this year. I would like to do charitable contributions until I'm out of the 22% tax bracket if possible. The second reason is to understand the size of my refund next year. It's important for budgeting to know if I will be getting a refund, and how big. I changed jobs and states this year, so I have a large amount of non-deductible relocation income this year.

I installed TurboTax 2019, but I don't know how to proceed without a W-2 form. I need to enter all kinds of quantities that are normally on the W-2 form such as Wages, Social Security Wages, Medicare Wages, etc. So now instead of forecasting taxes, I must first forecast a W-2. Is there a way to estimate what the W-2 will look like based on paystubs?

I have my paystubs, and they show year-to-date quantities for Regular/vacation, bonus, and relocation. There are also YTD witholding amounts for Federal and State income taxes as well as Medicare and Social Security. With only 2 more paychecks in the year, it should be easy to estimate the final YTD numbers. But I don't know how to use all these numbers to "generate" a W-2 for the tax software.

fru-gal
Posts: 1184
Joined: Wed Jan 02, 2019 9:48 pm
Location: New England

Re: Forecasting taxes

Post by fru-gal » Sun Dec 01, 2019 8:53 pm

This is one of the reasons I do my taxes by hand.

Do you have last year's return? Project from that. Most of the things you're asking about for the W2 have no effect on your taxes.

Topic Author
28fe6
Posts: 451
Joined: Wed Jan 03, 2018 9:01 am

Re: Forecasting taxes

Post by 28fe6 » Sun Dec 01, 2019 9:01 pm

Well, I have almost $60,000 of relocation expenses this year. That's definitely going to impact my taxes compared to last year. Also, as I mentioned I am planning to donate $25k+ to charity this year, which I didn't do last year. And I have a new state and new employer tax ID numbers and whatnot, so last year's information doesn't get me far. I only got 2 paychecks with my old employer.

The main things I'm missing from a W-2 are the various ""wages/social security wages/medicare wages" quantities, which aren't broken out of my paystubs, and what may be in the various boxes which I don't understand such as box 14.

ionball
Posts: 179
Joined: Wed Jan 31, 2018 12:17 pm

Re: Forecasting taxes

Post by ionball » Sun Dec 01, 2019 9:05 pm

Find a prior year W-2 and then find the associated year end paystubs. Compare them to understand how the numbers flow from paystub year end numbers into particular line items on the W-2. That's what I did. Having hard numbers that were applied in the past should instill some confidence.

User avatar
FiveK
Posts: 7817
Joined: Sun Mar 16, 2014 2:43 pm

Re: Forecasting taxes

Post by FiveK » Mon Dec 02, 2019 4:42 pm

28fe6 wrote:
Sun Dec 01, 2019 9:01 pm
The main things I'm missing from a W-2 are the various ""wages/social security wages/medicare wages" quantities, which aren't broken out of my paystubs, and what may be in the various boxes which I don't understand such as box 14.
ionball's advice is good.

You could also look at the first ~14 rows of the Calculations tab in the personal finance toolbox spreadsheet to see examples of what causes differences among gross, FICA, and W-2 Box 1 wages.

MechEngOSU
Posts: 26
Joined: Sat Mar 30, 2013 10:05 am

Re: Forecasting taxes

Post by MechEngOSU » Mon Dec 02, 2019 8:52 pm

FiveK wrote:
Mon Dec 02, 2019 4:42 pm
You could also look at the first ~14 rows of the Calculations tab in the personal finance toolbox spreadsheet to see examples of what causes differences among gross, FICA, and W-2 Box 1 wages.
+1 on the calculator tab

I built a similar spreadsheet to forecast my taxes and it was the best thing for learning and understanding how things flow onto my w2 and then affect taxes. Especially since our income varies month to month.

The full answer is more complex, but the simple answer to your question is SS is 6.2% tax and Medicare is 1.45%.

https://www.irs.gov/taxtopics/tc751

You can google and find out what gets subtracted from gross wage for each (like 401k, medical premiums, etc), and then do the multiplication. you’ll also see nuances like SS ceases after ~$132k (can’t remember exactly). And over $200k Medicare takes an extra 0.9% out.

I do that for monthly columns and then sum up each row and that effectively is like the w2 cells. Some cells arent critical to recreate in TurboTax, like employer share of healthcare payments.

HEDGEFUNDIE
Posts: 3645
Joined: Sun Oct 22, 2017 2:06 pm

Re: Forecasting taxes

Post by HEDGEFUNDIE » Mon Dec 02, 2019 11:02 pm

It is easy to estimate your taxes by hand. Grab your final 2019 paystub and:

1. Find the YTD gross income number
2. Find the YTD pre-tax deductions number
3. Determine if you will use the standard deduction or itemized deduction, if the latter sum up the amount.
4. Subtract 2 and 3 from 1, this gives you your taxable income
5. Use tax tables to calculate your tax owed
6. Subtract any credits like Child tax credit or Electric vehicle credit

That’s it! (This ignores any non-wage income you might have, like rental income, bank interest, capital gains, and also any non-wage deductions like traditional IRA contributions)

PS: unless you moved due to military orders, moving expenses are no longer deductible

Topic Author
28fe6
Posts: 451
Joined: Wed Jan 03, 2018 9:01 am

Re: Forecasting taxes

Post by 28fe6 » Tue Dec 03, 2019 11:07 am

I'm well aware that relocation benefits are not deductible anymore. That's why I'm doing this whole thing. I'm a bit nervous about paying taxes on that $50k+ relocation benefit.

Without appearing ungrateful for the relocation benefit, I may ask my employer for an itemized breakdown of the actual relocation expenses. Since I'm paying taxes on them, it seems fair to audit them to make sure they are legit.

snowman
Posts: 967
Joined: Thu Jan 31, 2013 12:59 pm

Re: Forecasting taxes

Post by snowman » Tue Dec 03, 2019 11:22 am

I am one of those doing it every year. Used to use TT, now using HRB. I run multiple scenarios for us (MFJ), plus a few for each kid.

Don't worry about exact W-2 SS and Medicare numbers. I just leave them blank. Put in your earned income (box 1), and your income tax payments (box 2). Same for state (if you have state taxes). That's all.

If you have 401k, estimate your numbers in boxes below. Don't be afraid to make mistakes or change numbers - create multiple files, scenarios, backups, whatever, and then sharpen the numbers as you get closer to December 31.

muddgirl
Posts: 64
Joined: Wed Aug 17, 2016 1:33 pm

Re: Forecasting taxes

Post by muddgirl » Tue Dec 03, 2019 12:08 pm

When we relocated last year, my husband's employer paid estimated taxes on his relocation benefit for the expenses they paid directly, and "grossed up" the cash payments they made to us. We ended up with a rather substantial refund.

Definitely check with your employer - if they are a large company that regularly pays relocation benefits they likely have a policy already in place.

HEDGEFUNDIE
Posts: 3645
Joined: Sun Oct 22, 2017 2:06 pm

Re: Forecasting taxes

Post by HEDGEFUNDIE » Tue Dec 03, 2019 12:15 pm

28fe6 wrote:
Tue Dec 03, 2019 11:07 am
I'm well aware that relocation benefits are not deductible anymore. That's why I'm doing this whole thing. I'm a bit nervous about paying taxes on that $50k+ relocation benefit.

Without appearing ungrateful for the relocation benefit, I may ask my employer for an itemized breakdown of the actual relocation expenses. Since I'm paying taxes on them, it seems fair to audit them to make sure they are legit.
Paid relocation benefits should show up on your paystub as a separate income line item. So it would be captured in my process outlined above.

Topic Author
28fe6
Posts: 451
Joined: Wed Jan 03, 2018 9:01 am

Re: Forecasting taxes

Post by 28fe6 » Tue Dec 03, 2019 3:24 pm

Does anyone have a suggestion for a tax table resource online? Where I can type in taxable income and get the amount of tax owed?

I'm having to do this manually in a spreadsheet, but there must be a calculator out there. When I search, all I can find is tax brackets, but not actually tax tables.

Edit: I did find this:

https://www.irs.gov/pub/irs-dft/i1040tt--dft.pdf

Not exactly a calculator but it is an authoritative source and tells you how to do it. An online calculator would be nicer.
Last edited by 28fe6 on Tue Dec 03, 2019 3:38 pm, edited 1 time in total.

User avatar
midareff
Posts: 6459
Joined: Mon Nov 29, 2010 10:43 am
Location: Biscayne Bay, South Florida

Re: Forecasting taxes

Post by midareff » Tue Dec 03, 2019 3:33 pm

fru-gal wrote:
Sun Dec 01, 2019 8:53 pm
This is one of the reasons I do my taxes by hand.

Do you have last year's return? Project from that. Most of the things you're asking about for the W2 have no effect on your taxes.
My method as well ( except income changes). I keep records, it's easy to extrapolate changes and their expected impact, and from there project my EFTPS quarterly requirements. If something changes I can always schedule an additional payment or cancel and change an existing.

User avatar
FiveK
Posts: 7817
Joined: Sun Mar 16, 2014 2:43 pm

Re: Forecasting taxes

Post by FiveK » Tue Dec 03, 2019 4:10 pm

28fe6 wrote:
Tue Dec 03, 2019 3:24 pm
Does anyone have a suggestion for a tax table resource online? Where I can type in taxable income and get the amount of tax owed?

I'm having to do this manually in a spreadsheet, but there must be a calculator out there.
One can type a number into one spreadsheet cell and see the tax in another. One could type a number into a web form and see the tax displayed elsewhere. Seems equivalent but maybe different in the eyes of different beholders.

Tax will depend on filing status, type of income, etc.

Simplest spreadsheet entry seems to be the Calculations tab of the personal finance toolbox spreadsheet.

Simplest web tool may be the 2019 federal income tax estimator. See US and state income tax calculator - Bogleheads.org for more discussion.

MarkerFM
Posts: 171
Joined: Fri Nov 30, 2018 4:18 pm

Re: Forecasting taxes

Post by MarkerFM » Tue Dec 03, 2019 4:57 pm

TurboTax has a useful estimating tool called the What-If Worksheet. It allows you to input a more limited number of key variables to estimate your taxes instead of doing a full pro forma tax return.

To use it, go to the Forms function in TurboTax. Then, click on Open Form. In the search box, type What. Click on What-If Worksheet and click on Open Form. There are some limitations spelled out in Help.

Post Reply