- I’m trying to understand the tax model. I want to understand the annual tax liability. And I want to understand the annual tax expense paid.
- How does the program calculate the income tax liability on income streams?
- I.e. Using the gross taxable income - deductions and the IRS regulations? (I understand it's not going to account for every nuance.)
- How does the program calculate the income tax liability on income streams? Is there a withholding lever or is it simply based on annual calculations?
- How does the program calculate the income tax liability on distributions from pre-tax accounts?
- I.e. Are RMDs and other distributions treated aggregated with other income and treated in the same manner? Or is there a separate calculation for the tax liability on distributions from pre-tax accounts.
- I see the tax liability for a particular year in Review > Expenses > Taxes
- The Review > Expenses > Taxes table indicates that “there is Tax due (or refund) by April 15 of the next year, if any. This amount will be included as an expense for next year.”
- The tax forms display the federal and state income tax liability for the year.
- It appears that payroll taxes are paid in the current year.
- It appears that the income tax expense for a particular year is based upon the prior year’s liability.
- If this is the case, how is the tax payment for the current year calculated when there is no prior year?
- Payroll taxes and total expenses are displayed on the expense statement table. It would be nice to view the tax expense (total income tax) on this table. (I’ll submit this as feedback)
- Is there an annual tax reconciliation of tax owed or overpaid?
- If so, where can a user see the annual reconciliation amount refunded or paid?
Thank you!
I'll take a shot at this:
2. Look at Review-Reports-Tax Forms and Brackets to see exactly how the taxes are calculated, the program makes mock-up tax forms for each year.
6. The explanation on Review-Expenses-Taxes about the taxes being due in the following year looks wrong. With the exception of a few items explained below, the taxes are coming out of the cash account during the year they are incurred year, not the following year. If you look at Review-Account Statements, you will see the Cash account is debited by the Total Expenses and those are consistent with the sum of all taxes and other expenses that year.
9. Currently there is a lag of a year on capital gains taxes from asset sales (and I believe on items from the Scheduled Withdrawal table). They are working on an upgrade as that requires iteration to get the right Roth Conversion amount as that affects the taxes due, which affects the cash demand, which affects asset sales, which affects AGI, which affects space for Roth Conversions... One of the advantages of Online vs. the spreadsheet is that that iteration was intractable in the spreadsheet.
12. Pralana always assumes you pay all the taxes in the tax year, there's no tax refunds and no late payments. Again the confusion seems to be the program information button you noted in your item 6.
