How to Estimate Personal Annual Taxes
- 1). Look at your income tax return from last year. Take into account all of your sources of income, both from earnings and investments. Look at your refund or balance due to see how accurate your withholding was. Did you get a huge refund? If so, then your tax may not be as much as you think it will be.
- 2). Estimate your income for the coming year. Will your salary be the same? Will you be working a second job? Will you have more or less investment income? Will you retire this year? Answers to these questions must be determined as accurately as possible to correctly estimate the amount of tax that should be withheld.
- 3). Determine the approximate dollar amount of retirement plan distributions that you must take this year if you must begin taking mandatory minimum distributions. Your retirement plan or IRA custodian should be able to give you a reasonable estimate of what you will have to withdraw.
- 4). Estimate the amount of deductions that you will be able to take for the following year. If you are going to be able to itemize for the first time this year, then your taxes may be less if your income stays the same.
- 5). Look at your effective tax rate from your previous tax return. This rate has nothing to do with actual tax tables or rates, but simply expresses the real dollar amount of tax that you paid versus your gross income. If your income and deductions are expected to both remain constant, then this number may be the most accurate estimate of your tax.
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