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I’m excited to share a tax planning tool that I’m thrilled to have discovered a year ago. I’m not one to overpromise or underdeliver, and this thing, recently updated for both the 2022 and 2023 tax code, is simply amazing.
I had previously spent hour upon hour creating a spreadsheet of my own to best approximate my tax liability to test out how some of the many tweaks available to me would impact various facets of my upcoming tax return, including:
- The Sec 199A QBI Deduction
- The Child Tax Credit
- My Marginal Tax Bracket
- Capital Gains Tax Bracket
Some things that I could do toward the end of the year that would impact the above include:
- Roth or Traditional 401(k) Contributions
- Roth conversions
- Charitable Giving
- Realizing Capital Gains
- K-1 Reported Income from Websites & Real Estate Investments
If you’ve never tried to do this yourself, I’m here to tell you, it’s complicated. One change impacts several calculations, and what might seem like a good idea can be a very bad idea, and vice versa.
Making the wrong move can easily cost you thousands of dollars in lost tax credits or tax deductions. Some deductions are based on taxable income, some are based on Adjusted (or Modified Adjusted) Gross Income. In some cases, certain types of income are added back in, like dividends earned that are removed from your taxable income when calculating the QBI deduction.
There are some other tax credits and income thresholds that may not be important to me now, but they might be crucial for you (or for me in the future), such as the:
- American Opportunity Tax Credit
- Lifetime Learning Credit
- The Earned Income Credit
- ACA Subsidy Brackets (and Tax Cliffs)
- 0% Long-Term Capital Gains (and Qualified Dividends) Bracket
I realized that a single sheet in Excel wasn’t going to be able to factor in all of this, even if I left out everything that didn’t apply to me and my tax situation.
I stopped working on my spreadsheet when it was at the “better than nothing” stage while realizing I didn’t have the skills to incorporate all the ins and outs of the monstrosity that is the U.S. tax code. Frankly, I wasn’t sure it was even possible.
Kathryn from Making Your Money Matter proved me wrong. It is possible, and after I published my 2019 tax return, she wrote to me, sending me her ridiculously thorough tax planning spreadsheet that she had pre-filled with the data from my 1040 that I had revealed.
With this powerful tool, I was able to confidently make some year-end tax decisions.
I decided to make only traditional, tax-deferred contributions to my individual 401(k). I opted not to make any Roth conversions.
Using this tool, I learned that donating an additional $36,865 to our donor advised fund, when combined with other itemized deductions we took in 2020, optimized my QBI deduction at $64,235. Here’s that calculation.
Like I said, it’s complicated. But Kathryn nailed it. Her spreadsheet skills are beyond compare.
Filling out the sheet looks like a ton of work, but every number on the sheet above is pulled from somewhere else in the spreadsheet. You change your info in a few key places, and all the sheets are filled in like magic.
She tells me she’s put thousands of hours into this project and I believe it. As such, she does charge money for the download, but the cost is less than what a quality CPA like her charges clients for just one hour of time. Also, it’s a one-time purchase but you’ll receive annual updates every year with each year’s new tax info, so you can use it year after year.
The planning tools she’s packaged include much more than tax planning; they’re designed to keep your entire financial life optimized and connected. This sheet makes a great complement to a course to a course like WCI’s Fire Your Financial Advisor that teaches you about the items tracked in the series of sheets.
Full disclosure: I am a big believer in Kathryn and the tools she’s created, and I expect to save hundreds of dollars in taxes (possibly thousands) thanks to her. I have opted to become a referral partner, and if you choose to purchase anything from her shop at Making Your Money Matter (you’ll find free resources here, too), you’ll be financially supporting Physician on FIRE and our charitable mission.
Below you’ll find her bio and the guest post she wrote for us.
Kathryn Hannah is a CPA working toward her Personal Finance Specialist designation (PFS). She currently lives in Shanghai where she loves to explore the city and works remotely for a financial planning firm focusing on tax planning and compliance.
A few years ago, I found myself exploring the jungles of Cambodia with my family. But it wasn’t Angkor Wat or the hundreds of intricate temples that enthralled me the most: it was the incredible Khmer people. As my 3-year-old daughter and 1-year-old son played in the dirt side-by-side with the local children and animals, I realized how happy everyone was. They worked, played, cooked, talked, laughed together and simply took care of each other.
Here I was, spending five figures on a two-week trip to Cambodia and Vietnam, literally more than the majority of these people made in an entire year of back-breaking work.
How could it even be possible that they seemed happier and more fulfilled in their lives than I was? Happier than most Americans, literally the wealthiest country on earth? And why did I pay this much money when my kids just wanted to play in the dirt anyway?
Spoiler alert: happiness doesn’t have anything to do with what material goods you have and even less to do with what you don’t have.
It was my trip to Cambodia that sparked in me the realization that I had the opportunity to build any life for myself that I wanted. I had opportunities available to me that so very few people in the entire world have.
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A SPREADSHEET IS BORN
I became obsessed with learning about personal finance. I consumed as many books, blog posts, and courses as I could. I knew that I needed to master money in order to help me build the life I really wanted, one where money was a tool to help me fulfill my dreams and not a source of anxiety and restriction.
I needed more than a budget: I needed a resource that would help me gain full confidence that I was doing money “right”. I needed to figure out if I was saving enough for retirement, if I had the right insurance in place to protect my assets and I especially needed to educate myself about investing and go beyond just automating contributions to a target date fund.
The tool I was looking for to create my financial plan didn’t exist.
So, I created it in the format of a spreadsheet. I went from being a typical nerdy CPA to a full-blown CPA nerd that builds spreadsheet in her own time for fun, finds budgeting comforting on bad days, and prefers reading Physician on Fire blog posts about backdoor Roth contributions over fiction novels.
Several hundred hours into the project, I realized that this was something that so many other people could benefit from. Several thousand hours into it, I had something that I was confident people could use to manage literally all aspects of their finances.
Every hour spent, every google search typing in “how to _____ in Excel” was one step closer to helping another person gain the financial peace in their lives that I had discovered was possible.
As a caveat, let me just say this: I think some people should just hire a financial advisor. There are “good guys” out there that charge a fair fee and are fiduciaries for their clients. I know PoF provides a list of vetted financial advisors that meet these criteria.
And then let me say this: I also think that most people can manage their finances themselves. That is, if they’re willing to spend the time to educate themselves on the topics applicable to their own specific financial situation and get guidance when needed.
I’m sharing a little about how I’ve set up my own system, which is available for purchase here, or can give you ideas on creating your own!
TRACK THAT CASH FLOW – BUT DON’T STOP THERE
Few people, even high-earning professionals (we know doctors don’t have a reputation for being great with money!), go beyond managing a budget.
Simply having a budget isn’t enough to achieve financial success. Being intentional with your spending is important (very much so!), but it’s crucial to cover other aspects of your finances as well.
This includes creating financial goals, analyzing debt payoff strategies (those medical school student loans!), minimizing your taxes, analyzing your insurance coverage, determining how much you need for retirement and more. This workbook is designed to fill that gap.
Here are the main topics that are covered in a financial plan (and in my workbook):
- Cash Flow Analysis
- Net Worth
- Debt & Credit Management
- Federal & State Taxes
- Insurance
- Saving & Investing
- Retirement Planning
- College Planning
- Estate Planning
The core of financial planning is basic cash flow analysis. I start with an annual budget, which is updated for actual data throughout the year. Knowing how much you earn and spend each year allows you the confidence to plan so many other aspects of your finances.
This information can be imported from any budgeting software you currently use (I love YNAB and Tiller!) or you can directly use this spreadsheet to enter transactions.
I designed my workbook to use the cash flow information to seamlessly populate other aspects of financial planning. For example, this includes pulling income and deductions in for tax planning spreadsheets, utilizing spending information to determine life & disability insurance needs, estimate retirement needs, etc.
TAXES – JUST DO PLAN IT
Ever had an April 15th surprise tax bill? That’s the absolute worst. I can tell you it’s not fun being the bearer of that bad news for clients, either. That’s the almost absolute worst.
By using a combination of actual and estimated data for the entire year, the workbook provides a continuous estimate of your annual tax liability and even helps you calculate estimated payments throughout the year.
If you know your way around a 1040, you’ll love that the tax summary provided follows the same format. If not yet familiar, this will provide valuable education to piece together your tax puzzle and see how your income and expenses fit in.
Not only will it help you to calculate your tax bill, but also help you identify planning opportunities including:
- How much room you have left in your ordinary tax bracket (great for Roth conversions when you’re in a low bracket)
- How much room you have left in your preferential tax bracket (i.e. qualified dividends and long-term capital gains)
- Whether or not you are eligible to contribute to a Traditional or Roth IRA
- Ability to run an additional scenario to determine the impact of making an IRA contribution, adding additional income, contributing to a Donor Advised Fund, etc.
- Optimizing the QBI deduction for business owners [PoF: my favorite part!]
The tax planning portion alone is worth the price of the entire workbook. As a CPA, I spent hundreds of hours ensuring that the calculations were correct, testing and incorporating as many tax laws as possible while making it an easy(er?)-to-use tool. Literally for significantly less than the cost of hiring a CPA for an hour.
Plus, I made it easy to update it with new phaseouts and brackets when the IRS updates these numbers for the new tax year. So, you can use it every year!
PUTTING IT ALL TOGETHER
You know how else taxes have an impact on your financial plan? Literally every piece of it has a tax impact.
My career change from being a CPA into financial planning was more of a slight pivot. Taxes affect everything from which debt to pay off first to college and retirement funding. While taxes were at first my main focus in the workbook, there were so many other things that were essential.
Debt Management
Debt is one of the greatest sources of stress in peoples’ lives. From making a debt payoff plan to tracking your loan amortization, reviewing your credit scores and reports and even organizing your credit cards if you’re a points junkie like me, organization is key.
Insurance Planning
When was the last time (if ever?) you thoroughly reviewed your homeowners and auto insurance policies? Do you know what your current deductibles are?
Life and disability insurance are just as important as property insurance (covering an even greater loss potential!). Using cash flow information readily available, it’s easy to see the gaps in insurance so that you can be confident that your hard-earned assets are protected.
Saving & Investing
Investing can be overwhelming to someone first entering the world of personal finance. There are a lot of moving pieces such as these:
- Creating an Investment Policy Statement (IPS)
- Determining and tracking your current and desired asset allocation
- Tracking your investment performance
- Determining preferred account location by tax status for particular investments
Retirement and College Planning
One of the biggest mistakes I see people make is not seeking out help with their personal finances until they’re close to retirement and want to know if they have enough to quit working. This isn’t nearly as much a problem in the FIRE community of course!
The process of planning for retirement is as follows:
Step 1: Determine your retirement income (pensions, annuities, social security)
Step 2: Determine your expected retirement spending
Step 3: Calculate the lump sum needed at retirement to cover the excess of spending over income
Step 4: Calculate how much you’ll need to save to meet your retirement lump sum goal and optimize those savings in tax-efficient accounts
Step 5: Run additional analysis to ensure that your plan is sound and has some buffer.
Estate Planning
You’ll want an attorney to help you draft up estate planning documents, but there are a lot of decisions that people get stuck on in order to get to that point.
It’s difficult, especially for younger people, to sit down and think about these painful questions, but if you have dependents, it’s the greatest act of love you can do for them.
All these pieces together make up your financial plan and the most important piece would be the one you’re least prepared for.
[PoF: A thorough legacy binder makes a great companion to expand upon this portion of the bundle.]
A FINAL NOTE
Financial planning is an ongoing process, as all (good!) financial advisors will tell you. Having up-to-date information linked in an easy-to-use format allows you to continually look at your financial plan and enable you to make timely decisions about your money.
There’s such an immense lack of trust in the financial industry (and rightfully so) and many other reasons someone might want to manage their own personal finances. For less than 1/20 of the price of even a low-cost, fee-only financial planner, this might be just the thing to guide you.
If you want to learn more, please check out these links:
- Get more details, video preview, screenshots, and look up FAQ’s here.
- Purchase the bundle here (includes both Excel and Google Sheets versions).
- Get some additional free resources for setting financial goals and setting up a budget here.
Also, note the generous refund policy on the personal finance bundle: “If you are not 100% satisfied with your order, we ask that you first send an email with the issues that are causing you to be unhappy with our product (we can help!). If we are unable to resolve your issue, we will happily issue a complete refund within 30 days of purchase. Learn more here.”
46 thoughts on “The Best Tool for Tax Planning”
Although my wife and I are professionals with advanced degrees, we were simply unable to follow the instructions to set up this product for use. While this may be a powerful product and right for people with extensive spreadsheet experience, it was completely unusable for us. In the end, we wasted many hours trying to get this up and running, so we hope to help others avoid the problems we had.
Thank you for your feedback M! It certainly isn’t the right tool for everyone, and I hope you’re able to find something that suits you better for your financial journey! ❤️
I learned the hard way never to waste my money on these alleged game changers. They’re nearly impossible to understand and the creator clearly doesn’t give a damn as is usually the case.
Hi Paul, it sounds like it was frustrating for you-I’m sorry to hear! I would be happy to help you figure out any parts of the Bundle that you’re struggling with. There’s a lot in there and while I tried to create videos and instructions on each page, I’m sure there were things that I missed that may be helpful. Feel free to reach out to me anytime!
Thanks for the feedback! The Google sheets version has some additional customizability (such as hiding tabs). It’s definitely a balancing act to protect my intellectual property and also provide something that can be tailored to a specific person’s needs.
Thank you. Could I please get access to the google sheets?
I know this is an early retirement blog, but I think she should continue to work. It go back and get a job that she finds meaningful in the non profit sector.
I would love to calculate tax savings with your bundle. Where we live there is this great tax break…
“ An individual is allowed an income tax credit for making a charitable contribution to a qualified endowment fund. The credit is equal to 40% of the contribution, up to a maximum credit of $10,000 (or $20,000, if married filing a joint return).”
Is there a way to track those donations to see how they effect our tax burden?
That’s a generous credit! Yes, I have 3 charitable donation categories in the workbook. The first two (tithes and deductible charity) flow to the charitable deductions on the tax return. The last (nondeductible charity) doesn’t (it’s for things like gifting to family, gofundme, etc). You could edit those first two so that the first one is for all other charitable deductions and the second is for only those that qualify for the credit. And then you could easily set up a formula to reference it on the state calculation.
Thanks for your quick response. I know, pretty awesome! I haven’t really created a spreadsheet. Do the directions teach you to make new formulas like you are suggesting? Happy Holidays 🙂
Honestly, the workbook may be a little bit overwhelming if you don’t have a basic understanding of using spreadsheets. It will require a little bit of customization to set up the state taxes to reflect your individual state and that’s where the formula would come in.
Thanks for the response. But I was wonder how to categorize transactions, like I bought 6 shares of TESLA in June… I’ve imported all my transactions from tiller (great service!). But I cannot figure out how to properly label investment transactions.
Think I found where I can input my securities on the portfolio allocation/fees. Is there a way to expand the rows for each account? I own a mix of individial companies and some sector ETFs. Would not be able to list everything I own/hold in 6 rows.
Thanks
For the investment-related transactions, I suggest labeling them as “non-budget transactions” (that category is included in the drop-down sheets). Tiller pulls those in too, but they aren’t needed for this workbook, unless you want create a custom sheet to track things like that. If you haven’t checked out their autoCat feature, it’s really awesome for things like this!
As for the holdings on the portfolio allocation sheet, you can simply copy a (middle) row, right click above or below it and select “insert copied cells”. Do this as many times as you need for extra holdings.
You’re always welcome to email me at contact {at} makingyourmoneymatter {dot} com with more questions. Sometimes it’s easy to answer with screenshots to help answers!
Hi
Interested by your excel sheet. Much more involved than mine. Does this work on Mac version of excel ?
Also, curious if there is a segment about required distributions for inherited IRAs?
It doesn’t specifically include RMD’s on inherited IRA’s. If you’re looking to track your inherited IRA you could use one of the Traditional IRA sheets. For calculating RMD’s on inherited IRA’s for clients, I usually use Schwab’s calculator.
It will not work in Numbers, but the bundle includes Google Sheets access as well as Excel (at no extra charge).
Thanks. Using it in the Mac version of Excel. Its great, but not sure my machine is handling the size of the file great (older mac from 2015). Still trying to figure how to set it up. Guessing it may be better to start off from scratch with the new in terms of the personal budgeting side of things?
Also, I haven’t found anything in the setup pdf about how to categorize investments. Unsure if able to add column for additional categories outside of what is there already. Like if I bought a security in my taxable account and sold it the next week, how do I categorize that? Tax loss harvesting?
The new year is a great time to start anew on budgeting, yes. If you like your current method you’re using for tracking expenses/budgeting, you’ll just want to spend customizing both that and this spreadsheet to match the budget categories you’d like to use. You can keep that and import transaction data from that software if you prefer, try using Tiller to automate transactions in this spreadsheet, or come up with another way. That’s something I always revisit for each new year.
I’m assuming you’re talking about the portfolio allocation sheet for categorizing investments. Yes, you can add categories (such as breaking out large, mid and small cap), you’ll just need to customize the stock & fund detail sheet as well. I wanted to keep it fairly simple so it wouldn’t be overwhelming for most people.
As for tax loss harvesting, the investment sheets don’t track out detailed transaction information like that. I personally find it easy to use detailed cost basis information in my investment account, since I already need to be logged in to make the transactions.
This looks great! Does it include options on married filing jointly vs separately? And options with student loans owned by one or both spouses and different strategies?
For example, last year we filed MFS after I ran the numbers and found out that while our taxes were higher, the student loan payments were much lower and more than paid up for that (especially since I am doing PSLF). Thanks in advance!
Hi LJ! It doesn’t include MFS because it adds such a level of complexity in some of the deductions and credits that I didn’t think enough people would benefit from it to be worth the extra time. I think you’re bringing up something a lot of people aren’t aware of and should be with not only optimizing taxes but your entire financial situation!
Sounds like a great tool! just a couple of questions if I may… Will this answer the following for me:
1. Given my target overall allocation, what is the appropriate asset allocation by account type (taxable, tax deferred, tax free)
2. Is it worthwhile for me to do Roth IRA conversion?
3. What’s the most tax efficient retirement withdrawal plan for me (from where, how much, when)?
Very good questions:
1. This is something even financial planning software for advisors doesn’t generally cover. There are so many variables at play that most have their own general guidelines (such as 1/3, 1/3, 1/3). Personally, I take an approach of looking at how much I’ve projected that I’ll have in tax-deferred accounts at retirement, what the RMD’s will be especially (there is detail for distributions by account in one of the tabs and I’ve incorporated RMD’s at 72+) and how much I’ll likely be paying in taxes based on that distribution assuming the tax laws are similar (by running an additional tax scenario). Then I compare my current tax rate to see if it would make more sense to shift some more funds to a Roth.
2. It will give you the information you need in a clear format to make that decision – if you look at the tax screenshot above, you can see that it provides you with how much “room” you have left in your current tax bracket and a graph that shows that clearly as well. You can also run an additional scenario to check those numbers.
3. No, but I hope to add something like this in the future. It currently distributes evenly from each account, but accounting and adjusting for RMD’s at 72. I need a few hundred more hours to work on this! 😉
Thank you Kathryn – appreciate your thorough explanations. It’s a pretty great tool!
You’re very welcome – thank you for the kind words!
Can this tool automatically input data on individual holdings etc from retirement accounts, spending categories from credit cards, etc much like Personal Capital does or would I need to manually enter everything? Thanks!
I’m not a fan of manually entering things, so I’ve incorporated as much automation as possible (time is money right?!). If you have a budgeting software that you already like to use, as long as you can export transactions into an excel file, it’s very simple to copy and paste those into the transactions sheet (the budget categories would need to be set up to match in this workbook) and that will populate everything you need for cash flow. Another really great option is Tiller, which allows you to link your bank accounts and pulls transactions directly into Excel or Google Sheets (and account balances too!). They have some neat auto-categorization and split transaction features for Google Sheets. The workbook is already set up to match the format needed for Tiller and instructions are included in the bundle to get that set up.
As for holdings, I keep hoping that Tiller will roll that automation out at as well at some point, but they haven’t yet (I believe they have the capability and may eventually, they’re just focusing on their core product currently). The Stock Connector app for Excel and Google Finance function for Google Sheets can be used to automatically update stock prices, and I currently use that but still have to update my number of shares on a monthly basis. It does simplify a bit!
This is incredible. As someone who struggles to figure out for others what sort of present I might want for the holidays, this might just be it.
I’m a data guy who uses spreadsheets and can appreciate all the work that went into this. Awesome stuff.
You made my day with your comment about wanting it as a Christmas present! Thanks so much for the kind words :).
Sounds great! What do you charge to fill it all out and advise user how to best optimize finances, savings, taxes, etc. financial advisor style?
I don’t currently have the capacity to provide in-depth one-on-one support/coaching, but I do hope to hold a webinar in the new year to provide some type of group instruction (likely a live webinar) on optimizing these types of things!
Wow super impressive, congrats! Looking forward to exploring more!
Thank you so much for the kind words!
Great Scott! (Think Back to the Future….)
Just watched the video and combed the FAQs on Kathryn’s website – the spreadsheet does look to be an AMAZING tool and incredible value for its price.
Two questions:
1) How does Kathryn’s spreadsheet compare to Personal Capital’s online tool for those of us who may not have a small business or difficult tax situation?
2) Does the spreadsheet come with lifetime free updates each year the tax law changes? Or will a “refresh” or new version need to be purchased every time the spreadsheet is upgraded to reflect current tax law? (Apologies if I missed this answer somewhere.)
Great questions!
1. The beauty of Excel is in the ability to customize, which is something that isn’t available in other software programs. I incorporated some pieces I love about Personal Capital (tracking your fund fees, the way the allocation is presented, etc.) but there’s SO MUCH more here. It’s much more than just tax or just investments.
2. I purposely made it easy to update for tax law changes without requiring a new version to be purchased each year. It would be way to difficult to have to move all of your data over every year! I have a stand-alone sheet that’s available to simply copy and paste updated tax phaseouts, brackets, etc. for a new year (detailed instructions on rolling over to a new year are included). Right now, the workbook is populated with 2021 tax numbers, but I have included another worksheet separately with 2020 numbers for those that want to do some year-end tax planning.
Sold! Thanks Kathryn for your response. As someone who has spent countless hours building his own spreadsheets to fill in the gaps around Personal Capital, I can immediately tell your spreadsheet puts mine to shame and will “pay for itself” in short order!
Those hours building spreadsheets really do add up. Don’t hesitate to reach out with any questions or suggestions, I’d love to hear them!
I’m finding that a lot of this is not necessarily customized. I think it is an amazing template, but I would like to tailor it to my specific needs such as (hiding tabs). I don’t want to present this to a client with all these extra tabs. But, I did see something about getting access to google docs which may fix this issue. Please let me know.
again, AWESOME product, I just want to customize it to my clientele base.