How Should You Estimate Your Future Taxable Income for a Deferred Tax Allowance?

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    Figure Your Current Annual Income

    • Use your latest tax return to figure your current annual income. Subtract any unusual or one-time income figures that you don't use for living expenses. For example, if you received a bonus and you invested that bonus for your future, don't count it as current income you need to live. You want to arrive at a figure that tells you how much income you currently use for living expenses.

    Estimate Percentage of Current Income

    • Estimate the percentage of your current income you will need in retirement. A typical amount is 70 to 80 percent of your current income. Assume for your calculations that you will achieve this level of income through a combination of Social Security, pensions and interest from retirement assets.

    Use Your Retirement Percentage for Tax Estimates

    • Once you have settled on the percentage of current income you expect to make in retirement, you can find your tax bracket for the future. Do this by using the Internal Revenue Service (IRS) Tax Rate Schedule.

    Tax Savings

    • Figure how much you are saving on taxes by comparing your future and current tax rates. Use the IRS Tax Rate Schedule to compare these. For example, if your current tax rate is 33 percent and your future tax rate is 28 percent, you can expect a 5-percent savings on taxes. If you are several years from retirement, those savings can constitute a significant amount of money.

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