*** If you care to learn deeply about the tax code, I have begun writing a book which contains everything I know on the topic. The book discusses wealth accumulation strategies, of which tax minimization is a key component. The (imperfect and incomplete) draft can be downloaded here.***
Today I noticed that Turbotax has updated their free Taxcaster software to account for the new tax law changes: https://turbotax.intuit.com/tax-tools/calculators/taxcaster/
It matches dollar for dollar with my estimated 2018 spreadsheet. If you have issues with my sheet, report them to me and I’ll update it accordingly.
I’d encourage every person to spend a few minutes to forecast their new tax liability for 2018. Play around with my spreadsheet as well. Calculate your effective marginal tax rate (I talk explicitly about how to calculate that in my EITC post). After doing so, figure out whether you want to contribute to Roth or Traditional IRAs/401ks going forward. Remember that you want to choose Trad when MTR_today (federal + state) > MTR_future (federal + state) and Roth otherwise.
For moderate income families with many children, EITC hacking is alive and well. Such families can now get humungo amounts of free money on $0 withholdings. The upside to doing so has grown by about $4k this year, depending on family size of course.
Here’s the rough snapshot of what will happen to my taxes:
After playing around in Taxcaster and my spreadsheet, I’d encourage you to look through your payroll withholdings and see if you are on track to hit your federal tax liability in 2018. It’s foolish to over-withhold income taxes, so don’t do it. It will take you 10 minutes on Taxcaster and your paystub to see if you’re on track. If you’re overshooting, then claim more exemptions. The optimal refund size is $0. People who are bad at math rejoice at a large refund after having over-withheld and given the government an interest free loan for 4-16 months. Don’t be like these people. If you irrationally like giving out zero interest loans, I’m happy to provide that service to you. I’ll take your money, pocket the interest, then return it to you in 16 months.
Perhaps most importantly I’d encourage everyone to take out a pen and paper and try to calculate their 2018 tax liability by hand. With the (effective) elimination of AMT and itemized deductions for most Americans, this should be a trivially easy activity. Going through this exercise will empower you to make informed decisions about tax minimization going forward.
An important thing to realize with any tax strategy is that all maneuvers must be completed by Dec 31, with the exception of IRA contributions which can be made up through tax day (mid-April). Now is the time to plan to minimize this year’s taxes, not next April when it is too late.
Happy tax hacking!
8 thoughts on “Taxcaster 2018 Available”
Just a note to those that read this blog….the 2018 HSA Contribution limit was just lowered by $50, so if you have auto deductions set up, someone could potentially over contribute this year if they don’t make any changes and were planning on maxing out HSA this year.
https://www.irs.gov/pub/irs-irbs/irb18-10.pdf (see page 17, section 4)
I love tax hacking. As you’ve mentioned before, it’s some of the lowest hanging alpha available. I can’t believe people don’t play around with Taxcaster more.
I want to let your readers know that the Bank of Jim will accept interest free loans and return your money 15 months later. A whole month earlier than Frugal Professor! Get your money faster at the Bank of Jim 🙂
I think you have an issue on the 2018 sheet as I am getting vastly different numbers than I am from turbo tax or HR Block forecasters. From first glance it seems to be the Effective Child tax credit column that is the issue.
Can you provide marital status, # children, # children <= 16, and taxable income (i.e. gross - 401k contributions - healthcare premiums, etc)? The spreadsheet has proved accurate for me for years under a host of scenarios. With the above parameters, I'd be able to dig into a solution. If you don't want to publish them to the world, you can email me at [email protected].
I used the TaxCaster, got a “humungo” result (I’m claiming 4 kids, $4700 in childcare costs and made $19991 for 2018) and am not sure that I can trust the prediction. I google-searched and utilized several other tax calculators, including H&R Block. The other calculators don’t match what the TaxCaster predicted. These calculators are $4000 less than the TaxCaster. Are you as supremely confident as you sound, in the TaxCaster result?
The reality is that you no longer have to rely on tax prediction software to estimate your tax refund/liability; you can fill out the actual 2018 software and see what it spits out. That is your actual tax liability/refund. FreeTaxUSA is live as of a few months back. I’m sure all of the other software packages are as well.
However, at $20k of income with 4 kids, you certainly are in prime territory for maxing out the EITC and the child tax credit. Congrats on the humungo refund!
Is it true that Tax Caster has the updated software, but all the new forms are not ready so the actual programs like HR block and Turbotax are still using the 2017 calculations? I have always been spot on with taxcaster and turbo tax in years past and this year Turbotax is showing 1100 less than taxcaster which makes me think based on the law changes it is still calculating on the 2017 algorithm.
For the straight W2 employee with normal labor income & investment income, I taxcaster seems to be working flawlessly for me. If you have a more complicated situation, perhaps taxcaster isn’t going to be good enough for you.
If you want the real deal, all tax software programs are live and operational right now. I use this one for free and love it: https://www.freetaxusa.com/. Even if you didn’t want to file with them, you could use them as a more sophisticated version of taxcaster.