Data Entry: Expenses

This is where you enter in specific expenses. For a brief overview of entering expenses within a financial plan watch this short video.


RightCapital will automatically create two cards for you to review: one for monthly pre-retirement living expenses and the other for taxes.

Expenses

In the Pre-retirement Living Expenses card, estimate the current monthly expenditures that have not already been captured.

Monthly Expenses

This expense number should not include taxes or expenses that you have previously captured, such as mortgages, loan payments, or insurance premiums.

You can either enter a single lump-sum number or break out pre-retirement expenses by category.  To enter expenses by category, select the 'A detailed worksheet' option in the Living Expenses card:

This will now give you the ability to break out expenses into different categories.  Categories are shared between the pre-retirement and retirement expense entry and the Budget screen.  You can add additional categories if you wish.

You can see the total expenses at the bottom of the card, and the total will also be displayed as the 'Monthly expenses' number.

Retirement Expenses

Expenses starting with retirement can be entered on the Goals screen


To enter additional expenses, click the green Add Expense button to create additional cards.

Each type of expense indicates a different tax treatment within a financial plan. Medical expenses will be reflected appropriately as itemized deductions.  Alimony will be an adjustment to income on Schedule 1.

Medical Expense

Medical expenses will be appropriately reflected as an itemized deduction within a financial plan. The medical expenses deduction threshold in 2020 is set at 7.5% of the household's AGI. The software will change the medical expense deduction threshold back to 10% from 2021 on.

When adding a medical expense card, the ‘type’ field allows users to specify the type of medical expense. The default of ‘Out of pocket’ will be treated the same way as any previous medical expense. The two other options are:

  • Pre-tax health care premium: Reflects a payroll deduction for employer-provided health care and will reduce ‘Wages’ on line 1 of the 1040 tax form.
  • Self-employed health care premium: Reflects the deduction for self-employed individuals reflected on line 29 of Schedule 1 tax form.

Alimony Expense

Alimony expenses will illustrate an outflow which reduces the taxable income, seen in Schedule 1 tax form. The divorce date will drive tax treatment of Alimony expense and income. For divorces that occurred prior to 1/1/2019, income is taxable and expenses are deductible. For divorces on or after 1/1/2019, income is not taxable and there is no deduction for expenses.

Extra Debt Payment

If you have entered a credit card or loan with a non-zero balance, you will see the option to input an Extra Debt Payment expense.  That expense will allow you to enter a one-time or recurring payments to pay off debt.

Other Expense

You can use the Other expense card to customize expenses, including start/end dates and inflation and tax assumptions.

Tax Deductible Expense Options

Taxable: Normal outflows in a financial plan that are funded by after-tax income or liquidating assets. This expense will not reduce the client's AGI.

Miscellaneous itemized deduction: Deductible expenses that will be factored into tax calculations after the TCJA sunset in 2025 or immediately when using 2017 tax law. If using TCJA no sunset tax law, the miscellaneous itemized deductions will not affect taxation within the plan. Tax law can be adjusted in the Profile > Expenses > Taxes and Fees Card.

W2 deduction: An expense that will reduce clients AGI seen on line 1 of the sample 1040 tax form.

Self-employed health care premium: Self-employed health care expenses that are funded pre-tax from self employment income cards and lower the client's AGI.

Above the line deduction: Above-the-line deductions are expenses subtracted from income before the adjusted gross income (AGI) is calculated for tax purposes. These expenses can be factored into tax calculations along with the Standard Deduction.

Above the line deduction - non cash: This option can be used to reflect a tax deduction without impacting cash flow.

Goal Based cash flow method

If you're using the Goal Based calculation method, you are unable to enter expenses as they are not factored into the calculation.

Taxes & Fees

The Tax and Fees card illustrates personalized values for taxes and fees, including:

  • Local (municipal / city) taxes (note: state taxes will be calculated automatically; you should not include state taxes here).
  • Filing status: If a single client is added within the Profile > Family tab, users can choose to illustrate either Single or Head of Household filing statuses. When a client and co-client are added to the Profile > Family tab, the financial plan will automatically use Married Filing Joint filing status.

Note: RightCapital will not illustrate Married Filing Separately filing status. If needed, users can offset the taxation within a finanical plan by entering a 'tax credit' or 'above the line deduction-non cash'.

  • Any miscellaneous itemized deductibles not previously captured.
  • The percentage of dividends assumed to be qualified.
  • The percentage of capital gains assumed to be short term/long term.
  • Any long term capital loss carryover.
  • Assumed portfolio turnover, used to calculate annual gains/losses in taxable accounts.
  • Asset-based fees: under 'Average AUM fees' you can indicate a fee percentage that will reduce all investment returns.
  • Detailed input of past MAGI (Modified Adjusted Gross Income) used to calculate Medicare part B & D premiums (two years prior) and calculate income-driven student loan payments (one year prior).

Frequently Asked Questions

1

Where can I enter AUM Fees?

Answer: The Taxes and Fees card will include a field for AUM percentage. This will reduce all non-annuity invested asset returns by the percentage indicated in the AUM field.

2

Which inflation setting determines growth on living expenses?

Answer: The general inflation setting is used to determine the growth of living expenses as they are projected into the future cash flows.

3

I don't see an add expense button, how do I add expenses?

Answer: When the "goals based planning method" is selected, RightCapital will remove the "add expense" input as it will not be used in future cash flow projections. To add additional expenses, change the Planning Method to "Cash Flow" or "Modified Cash Flow" in the Advisor Portal > Client Settings tab.

4

Can I customize the inflation of a single expense?

Answer: The "Other Expense" card will have an inflation dropdown menu that allows advisors to choose between a variety of options including customized inflation.

5

Are living expenses entered as a net or gross figure?

Answer: Living expense figure should be entered in net value. RightCapital will automatically calculate all federal and state income taxes separately.