Learn how to forecast your potential tax bill or refund with a tax estimator.
Was one of your New Year’s resolutions to improve your financial planning? We’re still in the front end of 2019, so to help you remain on track, consider using a tax return estimator to make sure you’re on good terms with Uncle Sam.
An income tax estimator (also known as a tax calculator) is a tool, or set of tools, that can help you figure out how to calculate tax. For example, maybe you’re wondering whether your tax withholdings from your work paycheck are enough (or too much), whether you can itemize deductions or take the standard deduction, or have other tax-related questions.
Tax estimators are especially important now, since tax day—April 15 for most of us—will be the first time that taxpayers are affected by recent changes to the tax code.
“People are still wondering how tax reform will impact them,” says Lisa Greene-Lewis, certified public accountant and tax expert at TurboTax.
She says people may have a high after-tax income this year, but she cautions they might not see extra cash in the form of a tax refund. The extra money may have come via their paycheck throughout the year as five of the seven tax brackets were lowered by about 1% to 4%, she says.
“People need to think about their overall tax picture. They may have already been seeing more money in their paycheck, or there could be a refund at tax time, or it may mean a lower balance owed, especially if they did not adjust their W-4 tax forms,” Greene-Lewis says.
This W-4 calculator can give you an idea of whether your withholdings are correct. Withholdings are especially important to review if you’re expecting a raise or if your family status has changed. This type of tax calculator can help you figure out personal exemptions, and it has been updated with the new tax laws, Greene-Lewis says.
One of the biggest changes in the tax code was a change to the standard deduction, which was nearly doubled to $12,000 for individuals and $24,000 for married couples filing jointly. Greene-Lewis says taxpayers who aren’t sure how they might file can use a standard-versus-itemized deductions tax calculator to figure out their status. To get a ballpark figure, just have handy a few stats such as adjusted gross income, any mortgage interest, property and state or local taxes paid, plus any charitable gifts and medical expenses.
Make taxes a little less taxing.
She says that if your estimate of itemized deductions is close to the threshold, the calculator will provide tips on how to get over the top, such as bumping up charitable donations or scheduling a last-minute medical appointment. Need to lower your adjusted gross income? Consider funding a traditional Individual Retirement Account (IRA), which you can do all the way to April 15. Just make sure to let the account’s administrator know it’s for 2018. Once you file and if you do have a refund coming, consider opening a Roth IRA with the extra cash.
Tax return estimators also forecast what you may owe—or see as a refund—when you file later this year. Income tax estimators such as the one offered by TurboTax can offer a deeper dive into how the tax reform may affect you, Greene-Lewis says. “They can give you a side-by-side comparison of how your situation changed under tax reform,” she says, such as whether you're likely to claim the standard deduction or not, if you’re subject to the cap on state and local tax deductions, and other key changes.
We may not be able to help with all your New Year’s resolutions, but income tax estimators can offer a timely tax checkup.
TD Ameritrade does not provide tax advice. We suggest you consult with a tax-planning professional with regard to your personal circumstances.
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