Understanding Your Tax Projection Results
Learn how to read your 5-year tax projection and understand why estimates may differ from client expectations.
Understanding Your 5-Year Tax Projection Output
Once you submit your tax model, Grantd generates a 5-year projection showing:
| Component | What It Shows |
|---|---|
| Federal Income Tax | Regular tax calculation using marginal brackets |
| Alternative Minimum Tax (AMT) | Parallel AMT calculation (you pay the higher amount) |
| State Income Tax | Estimated based on your input rate |
| FICA Taxes | Social Security + Medicare on earned income |
| Total Tax Liability | Sum of all tax components for each year |
Each year shows the tax liability based on the income, deductions, and assumptions you entered. This projection serves as your baseline before layering in equity compensation strategies.
Why Tax Estimates May Differ from Client Expectations
Several factors can cause Grantd estimates to differ from what clients expect:
1. Withholding vs. Liability Gap
The Issue: Equity comp withholding (often 22%) may not cover actual marginal tax rate (could be 32%, 35%, or 37%)
Result: Client owes more at filing despite "taxes being taken out"
Solution: Model tax reserve needs; adjust W-4 withholding or make estimated tax payments
2. AMT Surprise
The Issue: Clients don't realize ISO exercises trigger AMT
Result: Unexpected tax bill even though they "didn't sell anything"
Solution: Model AMT impact before exercise; plan for credits in future years
3. State Tax Treatment
The Issue: Different states treat equity comp differently (e.g., California's complex sourcing rules)
Result: State tax may be higher or lower than estimate
Solution: Verify with CPA familiar with client's state; use conservative rates
4. Timing of Events
The Issue: Grantd projections assume certain events will occur; actual timing may differ
Result: Taxes shift between years
Solution: Update model as events occur or plans change; treat as living document
5. Tax Law Changes
The Issue: Tax brackets, deductions, and credits change annually; major reforms occasionally occur
Result: Multi-year projections become less certain
Solution: The Grantd team updates the engine with each tax law change; review projections annually
6. Estimated Tax Payment Requirements
The Issue: Clients may not realize they need to make quarterly estimated payments beyond withholding
Result: Underpayment penalties at tax time
Solution: Use Grantd projections to calculate estimated tax needs; remind clients of quarterly deadlines (April 15, June 15, September 15, January 15)
7. SALT Deduction Impact
The Issue: With changes to SALT cap under the One Big Beautiful Bill Act, clients in high-tax states may see significantly different itemized deduction benefits
Result: Projections made before this change may underestimate deduction amounts
Solution: Update tax models to reflect current SALT deduction rules; especially important for CA, NY, NJ, and other high-tax state residents
How to Explain This to Your Client
When discussing tax calculations with clients, use this simplified framework:
"The Grantd platform calculates your estimated taxes the same way the IRS does, but in advance so we can plan:
- We add up all your income—including your salary and any equity compensation that vests or is exercised
- We subtract your deductions—either the standard amount or itemized if you have enough write-offs
- We calculate your tax—using the current year's tax brackets, and separately checking if Alternative Minimum Tax applies (which is common with stock options)
- We estimate state taxes—based on your state's tax rate
- We calculate FICA taxes—Social Security and Medicare on your wages
- We subtract any credits—like child tax credits or education credits
These are estimates because:
- Equity events may or may not happen as planned
- Tax withholding from your paychecks may not cover the full liability
- We're looking years into the future with assumptions that may change
- The U.S. pay-as-you-go system means you need to pay taxes throughout the year—sometimes through withholding, sometimes through quarterly estimated payments
That's why we review and update this regularly—and why you should verify everything with your CPA at tax time. It's also why we may recommend setting aside cash reserves or making estimated tax payments to avoid penalties."