Earlier this week, FreeTaxUSA went live: https://www.freetaxusa.com/
I’ve already filled out my tax forms for 2022, helping me to determine my 2022 federal tax liability with a high degree of precision (probably to within $10 or so). The remaining uncertainty is from not knowing the following parameters:
- 2022 total taxable dividends
- However, this is easily estimated as YTD dividends * 4/3.
- % Qualified (vs non-qualified) dividends
- However, this is easily estimated as % qualified last year, which was 95% last year.
- 2022 Bank interest
- However, this is easily estimated as YTD interest * 12/10.
Since I have a predictable labor income stream, I can easily do the math to extrapolate to determine:
- 2022 labor income, to the penny.
- 2022 labor income, to the penny.
- 2022 withholdings (fed, state, medicare, social security), to the penny.
In other words, there is no need for me to wait until I receive W2 forms or 1099’s. I already know perfectly what those will say.
Having already filled out my 2022 taxes to determine — essentially with certainty — my 2022 tax liability, I simply adjust withholdings in Nov/Dec to get to a $0 expected refund/payment.
In years past, I’d modelled the tax code in Excel and published it annually in the hopes that it would be a useful tax-planning tool. However, given the early availability of FreeTaxUSA, I’m increasingly coming to believe that this Excel modelling is an unproductive endeavor. That said, FreeTaxUSA is not a great tool to impute effective marginal tax rates caused by wonky phase in/outs of tax credits. In contrast, my spreadsheet excelled at that.
If you find value out of the tax spreadsheet, let me know in the comments and see if there is sufficient interest to update it.
Thanks for the tip. I tried out FreeTaxUSA last year and it seems like a nice product. Unfortunately I couldn’t file with them because of the some ISO exercising I’d done in 2021. Ditto for 2022, but I’ll use them to double check my numbers.
Seems like your bank interest may be higher in the last couple months of the year? But surely close enough.
Too bad freetaxusa won’t work for you.
Bank interest will indeed be a bit higher this year, but I hold so little cash that it won’t move the needle. I have $3k of cap gains losses this year, which is probably the biggest change from last year. And I have several thousand dollars of taxable bank bonuses from promos. That’s also new this year.
I think the value of your tax calc spreadsheet is not in knowing how much tax you would pay, but the educational use of it. I know of no better tool to educate people on how doing different things would change their tax bill. Yes, you could do this on other websites but it involves many more clicks, and you don’t get the cool graph at the end.
If N >= 1 people could get use out of it, I could be convinced to update the sheet this year. Thanks for the input.
Blog Reader MDM maintains his spreadsheet here: https://forum.mrmoneymustache.com/forum-information-faqs/case-study-spreadsheet-updates/350/?PHPSESSID=abi79te4fsk6ct4j046vjcgg6u
He is smarter than me and his sheet is more complex than mine, but I think they are complementary tools.
I’ll try to update it soon.
Frugal Professor – I just did this exercise w/ TurboTax and I am estimating I owe ~$5000. So I can just adjust my paycheck withholding to withhold an additional $2500 from my last two paychecks? And then adjust back in January?
2nd question – are there any IRS penalties to doing bigger withholding at the end of the year vs. having it evenly spaced out throughout the year?
1.) Yes, you can adjust for Nov/Dec through your W4 withholdings. It’s the “extra withholding” option at the bottom of the form (should be 4c).
2.) It’s my understanding that all W4 withholdings are treated equally by the IRS. That is, the IRS does not penalize you for making large tax withholdings in December when done through your payroll withholdings. That said, you would run into problems if you were to do the same with quarterly taxes withholdings if self employed since the IRS wants those withholdings to be smoothed throughout the year.
Obvious disclaimer: I’m a random internet stranger that has no idea what I’m talking about. For tax related questions, contact your attorney, accountant, senator, and president.