I'm a bit confused trying to understand how Pralana is calculating AGI and reporting taxes at the start of my modeling.
I've set up the Plan start year to 2025 (since we are almost there) and entered my 1/1/25 projected account balances. I am retired so there is no earned income or pensions coming in; income comes primarily from tIRA withdrawals and to a lesser extend from taxable interest and capital gains.
When I look at Review>Tabular>Expenses and Review>Reports>Tax Forms for 2025, Pralana thinks that I have virtually no tax due in 2025, which is clearly incorrect. And, looking at Review>Reports>Expenses>Taxes confirms that Pralana thinks my AGI for 2025 is virtual nil.
If I then look at Review>Reports>Tax Forms for 2026, it then shows a tax due, primarily from line 4c IRA distributions (2025 unscheduled). And Review>Reports>Expenses>Taxes shows that my AGI in 2026 is primarily coming from "Previous year withdrawal from Spouse's TD account"
So a couple of questions/comments:
Q1. I'm confused about how Pralana is distinguishing between "Calendar Year" and "Tax Year", specifically with respect to AGI calculations and when income is recognized. I would think that if I am pulling from a Tax Deferred account in 2025, then that would increase my 2025 AGI. But Pralana is reporting this income in my 2026 income. I don't really understand this.
Q2: That all being said, how should I correctly configure Pralana to calculate and report my 2025 AGI & taxes?
@lawrenceclaman I'll refer you to the section of the user manual entitled "Iterative Tax Calculations" for a brief explanation. This issue has always existing in the Excel-based Pralana calculators and exists in Pralana Online for the time being. This will go away soon as we expect the enable iterative tax calculations in the near future. Basically, the tools calculate your taxes based on your earned income and scheduled withdrawals from tax-deferred accounts and then includes them in your annual expenses. then, it subtracts these expenses from your income to determine your annual cash flow. If this is negative, it can result in subsequent unscheduled withdrawals from tax-deferred accounts, thus generating more taxes. For now, these taxes are paid in the subsequent year. This causes short-term inaccuracies, as you've noted, but the long-term effects are insignificant.
A workaround is to take note of the approximate amount of the unscheduled withdrawal and then go the Build > Financial Assets > Management > Scheduled Withdrawals page and put in some scheduled withdrawals of about the same magnitude. The taxes on these withdrawals will be modeled in the correct year and will generally eliminate those unscheduled withdrawals.
Stuart
Thank you Stuart, this is helpful. I'll give it a try.
