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You Might Need To Tweak Those 2018 Tax Calculators

Bozo
  |     |   1,375 posts since 2011

The tax calculators for the recently-enacted Tax Bill are all the rage. Some caveats apply.

I've reviewed more than a dozen such calculators, and each has similar flaws. (1) Each asks you to enter "income" or "adjusted gross income", but no calculator helps you get there. For Social Security recipients, the amount of taxable benefits varies based on other income. High earners, well, 85% of your benefits are taxed. (2) Negative income. Think the vagaries of IRS Form 8582. For those with MAGI between $100,000 and $150,000, with net loss carry-overs in real estate, Form 1040, line 17, will show a negative. To my knowledge, this loophole escaped scrutiny. (3) LTCGs and QDivs. Again, each survived unscathed, and are taxed at 15% for most (low earners actually at zero). If you plunk in a gain or a dividend as "income", the calculator will most likely assume ordinary income rates. In fact, the Federal rate might be substantially lower than your marginal Federal rate. In a Bah-Humbug moment, I should note CA taxes capital gains and dividends at ordinary income tax rates. CA gives a tad back by not taxing Social Security benefits (see below).

Moving right along, calculators which presume to calculate State income taxes often ignore that Social Security benefits are partialy (or totally) untaxed at the State level. One calculator I pulled up estimated my CA state income tax at roughly $16,000, when, in reality, it was more like $10,000. The flaw in the calculator: it assumed Social Security benefits were taxable in CA. They are not.

I double-checked the "bottom lines" of over a dozen tax calculators, after finding what I might call wild divergence.

Suggestion: Before you make any assumptions about 2018, find a trustworthy site, with trustworthy information, and crunch your own numbers.

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Ally6770
  |     |   4,307 posts since 2010
Why not just use the MAGI for last year and compare the figures for tax owed to the feds? SS is not taxes in my state either. Nor are some pensions.
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Bozo
  |     |   1,375 posts since 2011
For those over the age of 65 who plan on taking the standard deduction in 2018, another tweak might be required. The Tax Bill apparently retains the augmented standard deduction of $1300 per married qualifying senior (i.e., $2600 for a married couple both over 65) and $1600 for single seniors. Those legally blind may receive an additional amount. For that married couple who are both over 65 and use the standard deduction in 2018, reduce the "income" line in the calculator by $2600. The result should be the same as if your calculator used $26,600 as the standard deduction. I haven't found any calculator thus far which asks your age, or whether you are legally blind.
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Ally6770
  |     |   4,307 posts since 2010
True, or multiply your highest tax bracket by the figure given for us older people. You can adjust the figure from this info.
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