Larry/Dick
I can't reconcile the difference between ESP's Fed tax of $36,138 and HR Blocks $23,436. I entered all regular asset income as 100% capital gains or dividends.
There's also a special receipt entered that is not making it to the reports.
I've uploaded the database, the file is Conover.
My ESP pitch went OK last week. Now, we're comparing ESP outputs to Integrate software.
Charlie
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Charile,
I'll take a look and see what I can figure out. Shorter term, you can take a look at some of the federal tax details by opening a file that ESPlanner creates in your Temp directory:
C:Documents and SettingsRichard MunroeLocal SettingsTempmain.1-13-p09-00.TaxReport.xml
(this file name taken from one of my test machines) and open it with your favorite XML viewer (Firefox or IE 7.0 will do nicely). The name of the file will vary depending on the version of the CE that produced it, but it always has the form main.CEVersion.TaxReport.xml. This file contains additional information about the yearly federal tax returns. We're currently not doing anything with this information, but it's handy to try to understand what's going on under the federal tax hood. Here's an example of a yearly return for a single individual (husband):
162999.998698
0.000000
0.000000
0.000000
5586.836769
103000.000000
0.000000
37048.028926
153936.495261
It's not particularly meant to be read by humans but it may give you/us some clues as to what we think is going on.
Best,
Dick Munroe
p.s. I've looked at the case quickly and, at least for the first few years, you're getting a federal tax rate < 20% on the AGI which is pretty good for federal taxes (this from the tax report file mentioned above). You are getting hit by the AMT (which adds another 6.8 K onto the 29.3 K in base tax) but it still doesn't look unreasonable.
"you can take a look at some of the federal tax details by opening a file that ESPlanner creates in your Temp directory"
It's great to know this gem exists. That report states '08 fed tax of $26,238. The ESP report says $36,138. A bug??
Charlie
Dick, I running Windows 2000 and am unable to locate the tax file you mentioned. I've tried every search I can think of and no luck. Can you help/
Thanks
James
I found the file by first running a plan then, with ESP and the plan open, running a search for the file Dick mentioned.
Charlie,
Thanks for your reply. I tried your suggestion with no luck. Even searching for ".XML" finds only a few system files but not the tax report. Are you running WiN 2000 Professional?
Thanks
James
FWIW, I'm running Windows XP Pro. I'm not 100% sure where 2000 puts it's temporary files. Perhaps Lowell will chime in. I also don't remember when I put this capability in place, certainly a while ago, but if you're running an old version of ESPlanner then upgrade and it's certainly produced, I just don't know where. Of course, it may be that the handling of temporary files doesn't work the same way on 2000 and that file doesn't appear.
Best,
Dick Munroe
36k isn't a bug, you have to sum the tax and alternative minimum tax fields in the report to get the total federal taxes. Basically this file records the pieces of the federal tax form that we manipulate to get the amount we put in the reports. IIRC, your case had a base tax of about 26.8K and an AMT of about 9.6 K, something like that, and the sum was over 36k. It's conceivable that we've got the AMT wrong, but with all the time we've spent on it I don't think so (we went through a line by line analysis sometime since September and fixed a couple of problems turned up by one of our esteemed clients). My recollection is that your marginal tax rate, based on your AGI was < 20% which is pretty good, to the point that if any tax calculator reported significantly lower taxes then that lower number doesn't really pass the "sniff" test (the number is too low) for a federal tax burden on an AGI of that magnitude.
Best,
Dick Munroe
Dick,
Thanks for shedding some light on the tax calcs. I looked at the xml file you mentioned and I see that I am getting hit by AMT for a couple years. Then, in 2011, it stops, despite no real change in the other parts of my plan (i.e., there are no financial events such as special expenditures or receipts, no change in earned income, no change in retirement status, etc.)
My question is whether this cessation of AMT is due to future tax law changes, a bug, or something else?
Nope, it's probably not a bug, although it is something Larry and I argue about fairly frequently.
Basically, the AMT was introduced 1970. The purpose was to gain some tax revenue from the top 1% or so of tax payers (the folks the current crop of neo-cons are protecting so heavily). When the law was written it deliberately omitted indexing the tax brackets to either inflation or real wage growth. Then the brackets were left, more or less unchanged for 30+ years, at which point the AMT isn't a tax on the wealthy, but on the middle class as well. FWIW, the current, much publicized "fix" of the AMT by the current Congress is for ONE YEAR ONLY. Unless additional intervention occurs, the brackets revert to their prior, unadjusted value, and the middle class continues to get soaked.
Now, how do you wind up in the AMT? It's not really as simple as having too much income, although that helps. Basically the structure of the AMT penalizes folks who have a significant income and significant deductions that would otherwise put them into a lower tax bracket. The one most people run into is the mortgage deduction but you loose basically every itemized deduction you have.
Anyway, Larry believes that we have to figure that Congress will eventually become rational WRT tax policy and start to index the AMT brackets at some point in the future and we argue periodically about when (if) to start indexing and by how much. In any event, ESPlanner does index starting in the "future" which could result in you no longer paying AMT. Or your income could have dropped naturally. Or any number of other things. If you really want to understand why you may or may not be paying the AMT, you have to dig out a copy of Form 6251 from www.irs.gov and go through it line by line. If you're going to do this, we always fill out part 3 when we compute the AMT internally.
Best,
Dick Munroe
Dick,
Thanks for your prompt reply. It isn't just AMT I was concerned about. The taxes being reported are not even close to what I get when I run the same numbers in Turbotax. I think my mistake might be in assuming that regular asset income is taxed at long term capital gains rates instead of short term rates. I have a very high basis and expect not to realize short term gains but to withdraw from basis and long term gains insteaad. Is regular asset income taxed as short term gains (100% of my regular asset income is capital gains or dividends)? If so, is there a way to allow for only realizing only a small portion of those gains and funding consumption from long term gains and basis?
In the process of examining this, I turned inflation down to zero and reran everything. Although the basic results were the same, reported taxes fell dramatically. Could it be that taxes are being reported in nominal terms instead of real terms?
By the way, I also noticed that with inflation set to zero, the SS benefits still appeared to be inflated. Is the COLA built into the calculation independent of the inflation assumption?
clembob2 wrote:Dick,
Thanks for your prompt reply. It isn't just AMT I was concerned about. The taxes being reported are not even close to what I get when I run the same numbers in Turbotax. I think my mistake might be in assuming that regular asset income is taxed at long term capital gains rates instead of short term rates. I have a very high basis and expect not to realize short term gains but to withdraw from basis and long term gains insteaad. Is regular asset income taxed as short term gains (100% of my regular asset income is capital gains or dividends)? If so, is there a way to allow for only realizing only a small portion of those gains and funding consumption from long term gains and basis?
In the process of examining this, I turned inflation down to zero and reran everything. Although the basic results were the same, reported taxes fell dramatically. Could it be that taxes are being reported in nominal terms instead of real terms?
By the way, I also noticed that with inflation set to zero, the SS benefits still appeared to be inflated. Is the COLA built into the calculation independent of the inflation assumption?
The benefits also depend on expected real wage growth (about 1.1% according to the SSA Trustees report intermediate predictions) so, yes, you'll see some growth there as well. Which you can't do anything about in the interface.
When we've examined "comparable" results we've usually discovered that the "other" calculator (or operator) left something out or made radically different assumptions than ESPlanner does. The cause of the differences is typically not hard to discover, but we don't routinely compare results against other tax calculators. If you want us to do so, we'll be glad to, but you have to provide us with the inputs and results of the calculator (a completed set of tax forms is the minimum we can accept for analysis, anything less hides too much detail for us to do anything with them), your database, and which profile to run.
Best,
Dick Munroe
And as luck would have it, we were working on a different problem and spotted a bug in the AMT calculations that might cause the problem you're seeing. The update should be available in the next day or so. Try that and see if there is still an issue.
Best,
Dick Munroe