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Author: babyfrog Big red star, 1000 posts Old School Fool Home Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121219  
Subject: Help Estimating Taxes Date: 6/9/2003 11:46 PM
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I need help estimating my taxes for 2003, so I can adjust my withholdings appropriately. I don't want help with the actual numbers, just the formulas. A lot is changing in my life, and I want to make sure that I'm not underwithholding or overwithholding, to avoid any extreme surprises in next year. The ironic thing is that I do marginal income tax effect calculations all the time. It's just the 'total income tax' picture is a lot tougher to calculate accurately than the picture at the margins.

Here's the scoop, and why things are so difficult for me to guesstimate right now...

I'm getting married in November, 2003. My (future) wife and I expect to have our combined incomes below the cutoff for Roth IRA contributions, so we have already made our contributions for 2003. This locks us in to filing "Married, filing Jointly", regardless of the fact that it may cost us more in state income taxes. We felt that the difference in state income taxes paid this year would be dwarfed in terms of the value differential of tax free withdrawls from our Roth IRAs, versus taxable withdrawls from a traditional IRA in the future.

I just bought a house in Ohio. I know what my escrowed property tax and interest payments are, so that's not a problem. What I don't know is when the property tax 'counts' as being paid, for the purposes of when I can deduct it. Apparently, the huge chunk of property tax money being taken out of my escrow account this month actually belongs to the previous owner of the house, and it represents July - December, 2002 property taxes.

We both contribute to our 401(k)s. My fiancee works in the city of Mason, Ohio which levies a local income tax, even on non-residents who work in the city. I work in an unincorporated township in Ohio, which does not levy a local income tax. Our home is in a township in Ohio, which does not levy a local income tax. My fiancee is currently living with her parents in a township in Ohio which does not levy a local income tax.

We both have significant charitable contributions - to our Church, our alma maters, the United Way, and the Fine Arts Fund.

We each received tax refund checks for 2002 taxes. My fiancee received one from Ohio and one from the Feds. I received one from Ohio, one from the Feds, and one from the town where I used to live (I moved out, in mid 2002, to an apartment in a township that did not charge local income taxes. I overpaid my 2002 local taxes due to the fact that I didn't realize I was moving when I paid my estimated taxes, and I got a refund in 2003, as a result). I itemized my deductions in 2001 and 2002, my fiancee has never itemized, though we will this year!

Our stock sales for 2003, thus far, are pretty much a wash. The vast majority of our dividends are 'income replacement' dividends that funnel through our paychecks from our employer's retirement plan and are paid to us in lieu of salary, so I'm willing to ignore them or consider them regular income for the purposes of this exercise.

GIVEN: The local tax (Mason), the state tax (Ohio), the federal tax, the social security tax, the medicare tax, the property tax (including the deal that the taxes being paid now 'belong' to the prior owners), our 401(k) contributions, our forced status as Married, Filing Jointly (due to our Roth IRAs), our charitable contributions, our refunds from 2002, our mortgage interest, our historic status on itemizing deductions, and the fact that this whole "married homeowner" thing is new for us this year.

I need help. I have all the numbers. I can do the spreadsheet math. I just don't know what order to plug the numbers in to get an accurate estimate of how much money SHOULD be taken out of our paychecks each month. My biggest concern is being surprised in 2004 with 2003 taxes owed. My next biggest concern is ending up with a huge refund in 2004, based on significant overwithholding in 2003. I've figured it twice now, and each time, I've come up with vastly different numbers, based on different assumptions as to what number goes where. I've even plugged numbers into online estimators, only to have them spit out different things, as well. The whole process is too iterative, with step X+1 depending on the value of step X. There's no way to just say "I make $T, so I owe $R in taxes." Given the changes in our lives (getting married, buying a house), and the changes in the tax code, going back to our 2002 records and estimating from there would seem to be a fruitless endeavor.

Could someone please either help me figure out the right formulas or steps to estimate my taxes? If not, could you point me to a reliable free online tax estimator?

Thanks a million!
-Chuck
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Author: vkg Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 65772 of 121219
Subject: Re: Help Estimating Taxes Date: 6/10/2003 6:25 PM
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The problem with a reliable free online reliable free online tax estimator is that the tax laws for 2003 have been recently changed. The IRS has a tax calculator at http://www.irs.gov/individuals/page/0,,id=14806,00.html. Since the new laws should not increase your taxes, even if the calculator is using the old rules it should estimate high.

You also need a state income tax calculator. Your state may have a tax calculator on their webside.

Property tax is a deduction in the year paid. What year it is for does not matter.

Debra




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Author: babyfrog Big red star, 1000 posts Old School Fool Home Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 65775 of 121219
Subject: Re: Help Estimating Taxes Date: 6/10/2003 9:46 PM
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vkg,

Thanks for the calculator! It looks a darn site more promising than what I had been trying, at least on the Federal level.

-Chuck

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Author: edcosoft Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 65778 of 121219
Subject: Re: Help Estimating Taxes Date: 6/11/2003 1:07 AM
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The problem with a reliable free online reliable free online tax estimator is that the tax laws for 2003 have been recently changed. The IRS has a tax calculator at http://www.irs.gov/individuals/page/0,,id=14806,00.html. Since the new laws should not increase your taxes, even if the calculator is using the old rules it should estimate high.

Well, the calculator at http://www.edcosoft.com/qitc.html is reliable and free AND uses the new (May 2003)tax laws. Wouldn't you think the IRS could have done this? If you paid 1/4 of 110% of last year's tax, and are heavy into dividends and gains and AMT you can REALLY reduce your installments with this calculator because it computes form 2210 Schedule AI in advance for the lowest deposit to avoid a penaly. Use if for your June 15 installment!
ed


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