How to forecast for taxes without an accountant?

[Tap]

Xh and I divorced in early 2021. This year I will file for taxes for the first time on my own since I was 21. I will have my earnings, dd's SSI and my back payment from unemployment insurance 2020 (but paid in 2021) to list. Anyway to forecast what I will owe?

I have no idea how much in taxes I am going to end up paying. I have my payroll from my full time job set at '1' for dependent and 0 on my part time job.  I don't think the SSI is taxable. The unemployment I figure I will set aside 15% for taxes. (does that seem like enough?) I own my house and aside from retirements, that is it for investments. 

All of our tax software is on my x's computer, so until it is time to buy my own software this winter, I can't use that to forecast. 

Any ideas on how I can do this before it is too late to make any payroll changes for 2021? I have money in savings, so it won't wipe me out to pay some at the end of the year, but I don't want a large unexpected bill either. Since I still have 25% of the year left, I could make some big changes if I need to, but don't want to if I don't have to LOL

Edited September 5, 2021 by Tap

[Longtime Lurker]

16 minutes ago, Tap said:

Xh and I divorced in early 2021. This year I will file for taxes for the first time on my own since I was 21. I will have my earnings, dd's SSI and my back payment on social security to list. Anyway to forecast what I will owe?

I have no idea how much in taxes I am going to end up paying. I have my payroll from my full time job set at '1' for dependent and 0 on my part time job.  I don't think the SSI is taxable. The unemployment I figure I will set aside 15% for taxes. (does that seem like enough?) I own my house and aside from retirements, that is it for investments. 

All of our tax software is on my x's computer, so until it is time to buy my own software this winter, I can't use that to forecast. 

Any ideas on how I can do this before it is too late to make any payroll changes for 2021? I have money in savings, so it won't wipe me out to pay some at the end of the year, but I don't want a large unexpected bill either. Since I still have 25% of the year left, I could make some big changes if I need to, but don't want to if I don't have to LOL

You can add up your total income and subtract the standard deduction (approx 12.500 for single) and then use that amount to figure out what tax bracket you will be in. Note that tax brackets are marginal, i.e. - only the amount over each bracket amount is taxed at that rate. You can then use a bracket table to estimate what you will owe. Then look at your most recent paystub(s) to figure out how much has been withheld so far and compare the two numbers. I believe that SSI (unlike social security) is not taxable, so that should not be a factor. What do you mean by "my back payment on social security"?

[Tap]

That all makes sense. You are correct, I said the last sentence wrong. I will correct it.

It should have read "a back payment from unemployment".

Unfortunately, it was from 2020 but just paid now, so as far as I am understanding, I will have to pay taxes on it. I am hopeful that they will make a portion of Unemployment Ins. tax exempt for 2021 like they did for 2020, but I'm not holding my breath on that one. LOL

[Longtime Lurker]

https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2021

 

About a third of the way down the page it lists the 2021 Marginal Rates. So you subtract $12,550 (2021 standard deduction) from your income. Then you use the marginal rates to calculate the tax on that amount. So your first $9950 gets taxed at 10%, the remaining amount up to $40, 525 is taxed at 12%, etc.

 

[Longtime Lurker]

2 minutes ago, Tap said:

That all makes sense. You are correct, I said the last sentence wrong. I will correct it.

It should have read "a back payment from unemployment".

Unfortunately, it was from 2020 but just paid now, so as far as I am understanding, I will have to pay taxes on it. I am hopeful that they will make a portion of Unemployment Ins. tax exempt for 2021 like they did for 2020, but I'm not holding my breath on that one. LOL

Oh, that makes sense. You may have had taxes withheld from that, so that will help. I would hope that they would at least forgive amounts paid in 2021 but FOR 2020, but I wouldn't  hold my breath either 😞

[Tap]

Perfect! That will get me a really good number! Thank you!

I live in Washington, which doesn't have a state tax. Am I correct in assuming I only need to pay Federal Income Tax on that amount from Unemployment?

[Longtime Lurker]

Just now, Tap said:

Perfect! That will get me a really good number! Thank you!

I live in Washington, which doesn't have a state tax. Am I correct in assuming I only need to pay Federal Income Tax on that amount from Unemployment?

Correct. Nice to live in a state with no income tax!

You may have other things which will affect your tax return (investment interest, child tax credit?) but you can at least get a good estimate. The child tax credit could make a pretty big difference for you, so keep that in mind.

[Tap]

I am the guardian of a minor who has SSI and child support from her bio-dad. (She is my great-neice and a the ward of The State of Oregon). I have been looking at the difference in filing head of household vs. single. I can see some minor differences between the two, but not sure if I qualify or not. I hope the questions on the tax software will sort that issue out for me. 

The child is with me 90% of the time and only visits her other parents. I should be able to take the child tax credit for her. 🙂 (We always have been able to legally)

[Tap]

Looking at these numbers, I realize with the unemployment backpay and two jobs, I am going to be close on a big tax bracket jump! I'm glad I asked this question, so I can get rid of some $$$ before the end of the year! Good problem to have, but I really need to get some decisions made on bumping up my retirement! Since the UI wasn't expected ( I thought I was going to get denied) I think Ill just toss in as a catch up. Since divorcing, my retirement was essentially cut in half, so it wouldn't be a bad idea anyways. 

You have been so kind to answer my questions! Thank you!

 

[Ottakee]

You likely can file head of household as well which helps.

[Lanny]

10 hours ago, Tap said:

<snip>

All of our tax software is on my x's computer, so until it is time to buy my own software this winter, I can't use that to forecast. 

<snip>

@Tap I am a huge believer in  Online Tax Software (especially TurboTax) so for several reasons, I suggest to you that you set up a separate dummy TurboTax account with a different email address.    If their system detects that your SSN has been used on another tax return for 2020 (eg if that's the service you used for 2020), then use the Software of a different company, for example TaxAct.

(1) Go through their questions, as either "Single" or "Head of Household" and answer them and see what it shows that you will owe or get back. Then, go back to where it has the Filing Status and change to the other Filing Status. See which Filing Status is more advantageous to you (eg. Larger refund or less owed to IRS)

(2) TurboTax has a very active forum for their users. During the business week (IME early in 2021 for several 2020 Federal tax questions) they have some employees participating in the forum who may answer your questions in a few minutes). Earlier this year I had several questions about my 2020 Federal return (I don't need to file a State return).  All of my questions were answered in the forum.   I asked in the Forum after searching for information on IRS.GOV and on TurboTax, etc.

(3) The really tricky part is that if you do this, for example, today, the Online Tax Software is set up for the 2020 tax year. So, with any of the issues you have mentioned, if you know that there were changes between 2020 and 2021 tax years, you will need to make what we will call politely a "Wild Guess".   The idea always should be to come up with you owing as little as possible to the IRS or receiving a small refund from the IRS.  If under your circumstances you can keep that to approximately $300 USD I would consider that very successful.

OT: I have been able to use the IRS Free File program to file our taxes and those of DD (which include a State return) for a number of years. Sadly, TurboTax (Intuit) will not participate in that program starting in October (?) 2020 and probably some of the other big services will follow TurboTax and stop participating in the program.  Because I began on the IRS.GOV web site and used Free File, I was able to use the complete TurboTax Online Software, which included a Schedule C. Usually that requires a more expensive version of the service.  And it efiled my Federal return and the Federal and State returns for DD, Free...

Good luck!

[Longtime Lurker]

9 hours ago, Tap said:

I am the guardian of a minor who has SSI and child support from her bio-dad. (She is my great-neice and a the ward of The State of Oregon). I have been looking at the difference in filing head of household vs. single. I can see some minor differences between the two, but not sure if I qualify or not. I hope the questions on the tax software will sort that issue out for me. 

The child is with me 90% of the time and only visits her other parents. I should be able to take the child tax credit for her. 🙂 (We always have been able to legally)

Filing head of household is more advantageous than single (standard deduction is 18, 850 instead of 12.550), but single should give you a good enough estimate. Then you're right that the tax software will help you make sure you qualify (I am pretty sure you would). The child tax credit is $3000 this year for ages 5 to 17 instead of $2000. That would reduce your actual tax (rather than your income). Many people are receiving some of this in the form of advance payments this year, though, so be sure to factor that in if you are getting those.

Disclaimer: I am not a tax professional, just someone who has done our taxes by hand for years and who reads tax forums and IRS forms and publications for fun 🙂

[Longtime Lurker]

9 hours ago, Tap said:

Looking at these numbers, I realize with the unemployment backpay and two jobs, I am going to be close on a big tax bracket jump! I'm glad I asked this question, so I can get rid of some $$$ before the end of the year! Good problem to have, but I really need to get some decisions made on bumping up my retirement! Since the UI wasn't expected ( I thought I was going to get denied) I think Ill just toss in as a catch up. Since divorcing, my retirement was essentially cut in half, so it wouldn't be a bad idea anyways. 

You have been so kind to answer my questions! Thank you!

 

Remember that tax brackets are marginal so ONLY the dollars in the next bracket get taxed at the higher rate, Unfortunately, if this is the first time filing single instead of married that will affect your brackets. I am quite certain you can file as head of household, though, which will affect your standard deduction and your tax bracket advantageously.

This gives you the details to determine whether you qualify as head of household (index is on the left, scroll down a bit):

https://www.irs.gov/publications/p501

Here are the brackets for head of household (the brackets are in between single and married):

https://www.debt.org/tax/brackets/

[Tap]

3 hours ago, Longtime Lurker said:

Remember that tax brackets are marginal so ONLY the dollars in the next bracket get taxed at the higher rate, Unfortunately, if this is the first time filing single instead of married that will affect your brackets. I am quite certain you can file as head of household, though, which will affect your standard deduction and your tax bracket advantageously.

This gives you the details to determine whether you qualify as head of household (index is on the left, scroll down a bit):

https://www.irs.gov/publications/p501

Here are the brackets for head of household (the brackets are in between single and married):

https://www.debt.org/tax/brackets/

Yep! I all looks good for the HOH. That definitely helps. I also realized that since I already contribute to my retirement, a portion of my money is already going into my retirement prior to taxes, so that may be enough to drop me below the next tax bracket line. I understand the brackets are marginal, but I if I am going to give away 20% of my dollars, I would rather toss it into retirement instead!  I need to sit down with a calculator today and look at the numbers. 

XH and I opted out of the advance child tax credit, so the full $3000 will come out at tax time. That makes things a bit easier to calculate. 

Thanks again!!! 🙂 

[SoCal_Bear]

Disclosure: My husband works for Intuit and develops Turbo Tax

Turbo Tax has an tax planning feature within the software, but they also offer TaxCaster. 

https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

I will also say that most people don't realize that IRS e-file wasn't developed by the IRS. Intuit did it for the IRS. IRS is actually incapable of developing solutions. All the solutions related to relief programs by the IRS had to be created by Intuit without compensation when the IRS and Treasury were unable to do it. That was under the Defense Production Act. 

 

[Tap]

14 hours ago, Longtime Lurker said:

Oh, that makes sense. You may have had taxes withheld from that, so that will help. I would hope that they would at least forgive amounts paid in 2021 but FOR 2020, but I wouldn't  hold my breath either 😞

I originally had the UI set to withhold taxes, but changed it when they started talking about not collecting taxes on it. I didn't want to have to deal with a refund from the IRS and the subsequent phone calls if I didn't get it. LOL I was also concerned that if they messed up my account and paid me money I didn't deserve, it would mess up my taxes. 

I would rather pre-pay taxes than call the IRS. 🤣 It is now set to Not withhold taxes and I will just set the money aside myself. I am still waiting to hear if they filed my UI claim correctly, or if they will take the money back. I'm afraid to spend it 😞 My claim is complicated and has to be hand walked through the system. 

One thing UI has done this year to get money in people's pockets, is that they are sending out UI money, as soon as someone applies and then they verify everything after the fact. This is why the fraud is so ramped this year. My claim has be jammed up for over a year, but it just cleared another hoop and they issued payment. WOO HOO! But, I also got a letter saying I still need to do somethings first to verify eligibility. UGHHH!  So the money may not actually stick around 😞 The letter I got asks a question I don't know how to answer, so I have to take time off work again to call them. 😖 The story: I was working reduced hours at one job and on FMLA due to loss of childcare from my other job. The form I need to fill out asks "when did you start your job" and "when did you leave your job". There are only date fields, no other options. I don't know which job to use and since I didn't actually leave either one, I am not sure what date to put. I am not 100% sure which job they used to qualify me for UI, so if I only choose one, it needs to match. Guessing what they wanted, is what go me jammed up for a year, so I don't want to do that again. HAHA

[Tap]

25 minutes ago, calbear said:

Disclosure: My husband works for Intuit and develops Turbo Tax

Turbo Tax has an tax planning feature within the software, but they also offer TaxCaster. 

https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

I will also say that most people don't realize that IRS e-file wasn't developed by the IRS. Intuit did it for the IRS. IRS is actually incapable of developing solutions. All the solutions related to relief programs by the IRS had to be created by Intuit without compensation when the IRS and Treasury were unable to do it. That was under the Defense Production Act. 

 

Thank you that is exactly what I need!!! I didn't know any of that. That was an interesting tid bit. Thanks for sharing!

Edited September 5, 2021 by Tap

[SoCal_Bear]

I keep giving my DH feedback that they need to make these features way more obvious and easier to find. I used to be a CPA and am a power user for Turbotax...and I can't earily find it in the software.

 

[Longtime Lurker]

8 hours ago, Tap said:

I originally had the UI set to withhold taxes, but changed it when they started talking about not collecting taxes on it. I didn't want to have to deal with a refund from the IRS and the subsequent phone calls if I didn't get it. LOL I was also concerned that if they messed up my account and paid me money I didn't deserve, it would mess up my taxes. 

I would rather pre-pay taxes than call the IRS. 🤣 It is now set to Not withhold taxes and I will just set the money aside myself. I am still waiting to hear if they filed my UI claim correctly, or if they will take the money back. I'm afraid to spend it 😞 My claim is complicated and has to be hand walked through the system. 

One thing UI has done this year to get money in people's pockets, is that they are sending out UI money, as soon as someone applies and then they verify everything after the fact. This is why the fraud is so ramped this year. My claim has be jammed up for over a year, but it just cleared another hoop and they issued payment. WOO HOO! But, I also got a letter saying I still need to do somethings first to verify eligibility. UGHHH!  So the money may not actually stick around 😞 The letter I got asks a question I don't know how to answer, so I have to take time off work again to call them. 😖 The story: I was working reduced hours at one job and on FMLA due to loss of childcare from my other job. The form I need to fill out asks "when did you start your job" and "when did you leave your job". There are only date fields, no other options. I don't know which job to use and since I didn't actually leave either one, I am not sure what date to put. I am not 100% sure which job they used to qualify me for UI, so if I only choose one, it needs to match. Guessing what they wanted, is what go me jammed up for a year, so I don't want to do that again. HAHA

Yes, UI was sure a mess over the last 18 months 😞 Just make sure you don't owe more than $1000 at end of the year or you may have to pay a penalty.

[Tap]

3 minutes ago, Longtime Lurker said:

Yes, UI was sure a mess over the last 18 months 😞 Just make sure you don't owe more than $1000 at end of the year or you may have to pay a penalty.

Is that for taxes in general, or just UI?

 

[Longtime Lurker]

Federal taxes in general.

[Longtime Lurker]

Just now, Longtime Lurker said:

Federal taxes in general.

There are "safe harbor" exceptions, though, for situations when your income has changed a lot. If you have paid 90% of the current year's taxes (through withholding or estimated payments) or 100% of the amount of tax on last year's return, whichever is smaller, you are exempt from the penalty (that would otherwise be applied if you owe more than $1000). I think the penalty is only about 2% about the amount owed, though.

[Tap]

Ok. Well I guess I have more to think about. I really need to figure this out. Maybe I will talk to an accountant this year. Things are different from when I needed to do my own taxes before. There are a few things that I need to  figure out as well. Like the QDRO (I don't think I need to pay taxes on it) and refinancing the house into my name. The house was in 2020, but the QDRO was in 2021. So many little details to make sure I don't miss this year and lots of catching up to do!

[Tap]

16 hours ago, Longtime Lurker said:

There are "safe harbor" exceptions, though, for situations when your income has changed a lot. If you have paid 90% of the current year's taxes (through withholding or estimated payments) or 100% of the amount of tax on last year's return, whichever is smaller, you are exempt from the penalty (that would otherwise be applied if you owe more than $1000). I think the penalty is only about 2% about the amount owed, though.

I found this 

The law allows the IRS to waive the penalty if:

1. You didn't make a required payment because of a casualty event, disaster, or other unusual circumstance and it would be inequitable to impose the penalty, or
2. You retired (after reaching age 62) or became disabled during the tax year or in the preceding tax year for which you should have made estimated payments, and the underpayment was due to reasonable cause and not willful neglect.

 

Since the Unemployment lump sum payment from 15 months prior, is what will potentially tip me over the edge into paying, I would hope I could write a letter and get it waived. If not, even if I owe $3000 that would only be $60. So not too bad, considering. 

[Longtime Lurker]

7 hours ago, Tap said:

I found this 

The law allows the IRS to waive the penalty if:

1. You didn't make a required payment because of a casualty event, disaster, or other unusual circumstance and it would be inequitable to impose the penalty, or
2. You retired (after reaching age 62) or became disabled during the tax year or in the preceding tax year for which you should have made estimated payments, and the underpayment was due to reasonable cause and not willful neglect.

 

Since the Unemployment lump sum payment from 15 months prior, is what will potentially tip me over the edge into paying, I would hope I could write a letter and get it waived. If not, even if I owe $3000 that would only be $60. So not too bad, considering. 

Yes, I would think that this would be the type of situation the would qualify for a waiver. It should count as "other unusual circumstance" in #1 above.

[Lanny]

On 9/5/2021 at 8:19 PM, Tap said:

Ok. Well I guess I have more to think about. I really need to figure this out. Maybe I will talk to an accountant this year. Things are different from when I needed to do my own taxes before. There are a few things that I need to  figure out as well. Like the QDRO (I don't think I need to pay taxes on it) and refinancing the house into my name. The house was in 2020, but the QDRO was in 2021. So many little details to make sure I don't miss this year and lots of catching up to do!

Another option would be to set up an appointment with an IRS "Enrolled Agent".  CPA or Enrolled Agent, write down all of your questions and concerns before you go to the appointment, so you don't forget any of the issues involved.