Section 1 -- Overview of your taxes in VeriPlan

Using your tax-related settings on this and other worksheets, VeriPlan projects your lifecycle tax obligations in 8 different tax categories. VeriPlan's automated tax projections in these 8 tax categories are presented on the blue-tabbed '7-TAXES $' and '8-TAX RATES %' graphics and on the corresponding data worksheets. To prevent obsolescence, VeriPlan allows you to change tax rates and tax limits on this worksheet, in case tax laws change in the future.

On the yellow-tabbed "11-YOUR TAXES" worksheet, you can set tax assumptions and enter personal information about your:
* tax filing status
* federal income tax exemptions, adjustments, and deductions
* your property and other non-income taxes

This worksheet also provides and/or collects tax-related information used by VeriPlan including:
* federal income tax rates
* state and local income tax rates
* Social Security (FICA) and Medicare taxes
* federal dividend and long-term capital gains tax rates

You will observe that the '11-YOUR TAXES' worksheet could be more time consuming to complete, than the other yellow-tabbed "Your Profile" worksheets in VeriPlan. This worksheet is designed to capture the key tax elements required to develop financial projections that truly reflect your particular tax situation. It also provides you with significant abilities to modify your tax related data, as your personal situation changes and as federal, state, and local tax laws evolve over the years.

If we could have made this sheet more simple, we would have. However, the excessive complexity of the U.S. tax system forces this worksheet to be both extensive and adjustable. As you complete this worksheet, keep in mind that, after their efforts to earn and save money, there are two other factors that probably have the greatest impact on the overwhelming majority of people. These factors are: 1) taxes on income and assets and 2) investment costs.

Once you have entered your personal data into VeriPlan and have begun to evaluate your personal scenarios, this will become very clear to you. Financial and investment plans that ignore taxes and investment costs are just fantasies. VeriPlan can help to reduce the fantasy element in your family's financial lifecycle planning efforts.

Below, VeriPlan provides a variety of gray user data entry boxes for you to enter information about your personal tax situation. To find your tax information for this worksheet easily, please consult copies of your recent federal, state, and local tax returns. In addition to U.S. federal, state, and local income taxation, you will also use this worksheet to enter information about your property taxes and certain other taxes.

From your earned income, VeriPlan will automatically deduct federal and state ordinary income taxes, Social Security taxes (FICA), Medicare taxes, and self-employment taxes. Using the appropriate tax filing status, tax tables, and taxable income, it will automatically determine and deduct these taxes.

In any particular projection year, if positive net earned income remains after your expense, tax, and debt payments, then these positive net earnings will be invested according to your settings in these various worksheets. If you have negative net income in any particular year, then this shortfall will be made up through withdrawals from your financial assets, which include cash, bonds/fixed income, and stock/equity assets in taxable and/or tax deferred accounts. Withdrawals will be taken according to your setting on the various worksheets. In any particular year, income taxes will be applied in accordance with current federal and state tax laws and rates.

Ordinary income taxes and short-term and long-term capital gains taxes will be deducted from asset returns, and net earnings on investment assets will be automatically reinvested. Reinvested asset returns will be net of both these taxes and your projected investment costs. Any tax basis that you may be carrying for a particular asset will also be automatically decreased or increased, as appropriate.

Whenever you would have a current earnings shortfall, after expenses, taxes, and debt payments, then VeriPlan will automatically withdraw the necessary funds from your assets and apply the required distribution taxes. Because most individual tax payers figure their taxes on asset related gains and losses and make asset tax related cash payments in the subsequent year, VeriPlan deducts these cash payments related to asset withdrawals after the beginning of the next year.

VeriPlan will also automatically calculate appropriate taxes related to your asset income. This '11-Your Taxes' worksheet does not ask for tax inputs related to asset yields on cash, fixed income, equity, property, real estate, business, or other assets. Separately and automatically, VeriPlan will project ordinary and capital gains taxes associated with distributions and withdrawals related to your assets. On the yellow-tabbed '8-Your Stocks' asset worksheet, you will supply information about annual taxable distributions related to your assets. This information will also be found on your federal tax returns. You will NOT need to supply similar information on the '6-Your Cash' and '7-Your Bonds' asset worksheets. VeriPlan assumes that cash and bond interest income will equal the projected returns for these asset classes. Cash and bond interest will be taxed in the current year at federal, state, and local ordinary income tax rates.

Tax laws, rules, and regulations are incredibly complex, vary widely, and change frequently. VeriPlan provides methods to project the approximate impact of federal, state, and local taxes on your future financial situation. In addition, VeriPlan provides numerous methods for you to customize and adjust its tax and other assumptions. You should take care to understand and verify that VeriPlan's assumptions reasonably reflect your current tax situation and your expectations about the future.

While VeriPlan may be aware of some unique federal, state, or local tax laws and rules, it simply cannot incorporate them all and maintain its ease-of-use and generality. Note also that we have attempted to implement a "conservative" modeling approach, when a choice is available, that will usually over-state rather than under-state your projected tax burdens given current laws and rules. This means that your continued attention to tax optimization for your particular situation as the years go by may yield modest favorable gains relative to the specific tax assumptions that you have chosen to set in VeriPlan.




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Demonstrating a comprehensive projection for a professional couple with children, the VeriPlan tutorial can help you to understand what VeriPlan can do. Use this link to download a free copy of the VeriPlan tutorial file:

Download the Free VeriPlan Tutorial Now