Effective Tax Rate Question
Hi Stuart. Could you help me understand the effective tax rate in the model? I understand the term vs. marginal rate, but does it only factor in federal taxes, or does that also include state taxes? Second, I'm having a difficult time trying to replicate the calculation. When I've tried to take any combination of federal and/or state taxes, and tried to divide it by taxable income or AGI, I'm getting different percentages. Can you share what the actual formula is, or what income is being used in the denominator? Perhaps there is some other income or adjustment that I am not factoring. I'm just trying to understand what my total federal and state tax rate is, as a percentage of (which) income line. Hope this makes sense.
Sure. Effective tax rate = (federal tax + state tax + FICA + NIIT + AMT) / (all income specified on the Income page - tax deferred contributions + growth of the regular account + RMD's + Roth conversions).