this is would be so helpful! I tend to pay any taxes as withholding or with the actual transaction (like taxes with a Roth conversion). It would be great to indicate any type of taxable event to indicate “pay same year” or “payable in next tax year”. This helps with looking at my budget in totality for one year.

Making estimated tax payments is normal behavior for those in retirement. A lot of pre-retirees don’t even know they’ll need to do this, so I’m not sure this should be subject to votes. It needs more user education, more “trust me, you want this.” Well, that’s my opinion, anyway!

Agreed – quarterly estimated tax-payments is normal in retirement, so being able to have PL model this out is just another means of getting PL better in tune with the reality of cash-flow and money movement. Now that PL has introduced months into its timeline (or no longer just being at a yearly total view), having this ability would be nice.

Quarterly estimated tax payments would be a great help for annual financial planning, especially when large taxable events like sale of a property or Roth conversion occur.

Curious if this would address most of your needs?

https://changemap.co/projectifi/projectifi/task/11224-additional-custom-tax-withholding/

My suggested implementation is: Create a new expense type, a “Tax Payment.” Money spent on this expense is treated as if it’s a withholding. Maybe include an option to set the expense equal to the end-of-year tax payment estimated by PL (dunno if that works; depends on the order of operations when PL simulates).

I’d be concerned because estimated tax payments and actual withholding are treated differently by the IRS. Withholding is gold-plated, gets treated as having been on time no matter when it is done in the year. Estimated payments may not be timely and then generate a penalty.

That’s true, but PL simulates on an annual time step, so all the nuance around when estimated payments are made is necessarily lost. PL will have to (reasonably) assume we paid it on time, which makes it similar to withholding.

Yes, this would be a feature that would make our cash flow and tax payments more realistically modeled in PL. Also, for Roth Conversions it would be great to have a field embedded in the conversion tool where you could specify from which accounts the taxes for the Roth conversion would be paid. In other words it would be more realistic if the user could specify a Roth Conversion Tax Payment account drawdown order. Many thanks for the great work you all are doing!

Since this doesn’t exist yet, how do you all handle estimated tax payments now? If I make them an Expense, they aren’t recognized as tax and don’t show as part of the Tax Balance. Is there a workaround for now?

I used a suggestion Shawn made a year or so ago on discord for awhile. The complicated version is to create an expense/income pair for each tax payment to shift them into the correct year (income in following year). The easier but “less accurate” version of this, if your roth conversions happen in a sequence of years, is an expense in the first year and an income event in the last year. If all the tax bills are about the same, this is close.

Currently I’m not doing any of it, because it’s just too messy to maintain. The only real approach is for PL to support this directly.

Thanks, I agree. That’s too much work to maintain. It seems like a simple change to add a new expense type so it’s treated as tax by PL. Unfortunately, if changes are determined solely by the number of votes, this will never happen. Maybe people just don’t care about the tax balance being correct throughout the year.

This would make modeling much more accurate. I’d rather not pay taxes from the 401K account. And with Roth conversions that make up a significant portion of taxable income, there’s no way I’m waiting until next year to pay that tax. The underpayment penalty is a 7-8% interest rate on the amount owed. For $100k conversion, that’s ~$1875 penalty if you convert in December and pay taxes 3 months later.

I have a number of years of Roth conversions resulting in each of the following years showing large Tax Return Payments in the Cash Flow. Having mostly tax deferred accounts to pay taxes from, I set up a series of flows from an IRA into itself with 100% tax withholding rate that are in similar size to the tax return payments. That will at least put a tax payment in the same year as a Roth conversion. Close enough for my purposes. Can’t take credit for this idea, as I think I recall reading it elsewhere on Discord.