Understanding Projections and Scenarios

Projections

A Projection is a forward looking estimate of your tax burden for a given year. The goal of making a projection is to get a sense of the taxes that will be owed based on your financial decisions.

You may run a projection to get a very accurate estimate to know how much to pay in estimated taxes. You may run a projection to get a very rough estimate to decide something like “Should I think about Roth Conversions?” Either are great reasons to project your taxes.

What data should I start with?

The “Base” input of a new projection should generally be all tax data that is known or expected for this year, leaving out any estimates you are unsure of or have questions about.

For example, your W2 job, known bank interest, dividends, social security, pensions, etc. are generally all fairly well known throughout the year. These are all good income sources to use as your base.

However, a potential but uncertain bonus, potential Roth Conversions, potential Capital Gains, or highly variable business income might be something you want to leave out of the initial projection.

How long does it take?

If you know your numbers or have reference data handy, it only takes a minute or two to enter the data. Adding Scenarios is even faster, as a typical situation is only adding or changing one or two numbers.

A user comfortable with using Catalyst can often do a full Projection in less than 2 minutes.

Scenarios

You can think of a Scenario as a “What If?” question. It’s generally a good idea to ask one question at a time in each Scenario. You can add as many Scenarios as you like in your projection. Some examples might be:

• What if I do Roth Conversions this year?
• What if I take capital gains from selling a rental property?
• How can I best access funds for my down payment?

When should I create a Scenario?

After adding the “Base” - the income you fully expect to earn this year - you should add a Scenario with “What If?” questions. Following our earlier example, you might add a Scenario and then enter “$50,000” in the Roth Conversion box to see how much additional you would pay in taxes if you performed that conversion.

Remember, you can add as many Scenarios as you like. You could add 4 Scenarios in this example, maybe with Roth Conversion values of $30k, $40k, $50k, and $60k.

For some practical examples, see the Common Workflow page.

How are Scenarios compared?

Your tax projection is updated each time you add a Scenario with a table so you can compare the values side by side. With this table, you can quickly compare all the different “What If?” results and see how your taxes change across the options.

Can I change a Scenario?

You can use the menu alongside the Scenario title to “Save As”. This allows you to start a new Scenario with the data used for the previously entered Scenario and then make updates. This is most commonly used if you make a mistake and forget to enter a value.

You can use this same menu to delete a Scenario - removing the mistaken one if desired.

How accurate are tax projections?

Catalyst handles a majority of typical tax situations for most tax filers and should calculate your taxes accurately to within a few dollars in these cases. Your W2 income, business income, typical deductions and credits are all accurately calculated against IRS forms.

However, Catalyst does not handle every situation or tax form, and so there may be situations in which your tax estimates may not match your actual tax burden. Users should always double check all math before making large financial decisions based on this information.

What are some tax situations that are not handled?

Catalyst does not handle special tax filing rules for farms or church employees or religious or organizations. It also does not handle special rules that apply to foreign income and Puerto Rico income, nor does it handle Railroad rules.

Many uncommon deductions or credits are also not specifically handled, including some on Schedule 3.

Additionally, Catalyst typically does not calculate limits on inputs. For example, if you have a typical W2 job, Catalyst will let you enter in a $100,000 401(k) contribution. It is up to the user to keep the filing within the expected limits.

This is not an exhaustive list.