Knowledge Base: Business Assets

Explore Business Asset in RightCapital

RightCapital enables advisors to capture every element of a client's financial landscape including elements like business assets that impact net worth, income, and taxation.

This article is designed to provide an overview of business assets and their impact on a client's financial picture. To review entering business assets into a client's profile, please review this article.

Business Types in RightCapital

Business's can be entered in a financial plan within the Profile > Net Worth > Add account > Other account area. These businesses can produce income within the financial plan or be liquidated to fund cash flow needs in the future. Advisors can choose to enter C Corps, LLC's, Partnerships, and S Corps.

C Corp

C Corp's represent the most common type of corporation, in which, the owners are taxed separately from the business entity. This type of business limits the liability of owners to the amount that they have invested into it.

LLC

Limited Liability Companies combine characteristics of a corporation with those of a partnership. LLC's are not taxed directly, rather the profits and losses are passed to members who are taxed individually. Owners of an LLC are not liable for company liabilities. The self-employment income card in RightCapital found in the Profile > Income area will be taxed as an LLC.

Partnership

Partnerships represent an arrangement between two or more parties to run a business. Owners of the partnership share both profits and liabilities. Partnerships are not taxed directly, rather the profits and losses are passed to owners who are taxed individually.

S Corp:

S Subchapter or S Corp's business's meet certain criteria which allow them to benefit from incorporation while being taxed similar to a partnership. Typically S Corporations have 100 shareholders or less who meet specific requirements. Corporate taxes are passed onto shareholders from an S Corp through K1 income. Alternatively, to enter only the income associated with an S Corp use the Profile > Income > Other Income> choose Earned Income in the dropdown menu.

Taxation on Business Income

Each business type will have income taxed accordingly. Users can visit the Tax > Tax Estimate > Details area to see the impact on business income within the sample federal tax forms. Self-employment income cards will be taxed as LLC income.

LLCPartnershipS CorpC Corp
Income Taxed as:Ordinary IncomeOrdinary IncomeOrdinary IncomeDividend Income
Income Shown on Schedule 1Line 12 (from Schedule C)Line 17 (from Schedule E)Line 17 (from Schedule E)N/A
Business Income Subject to FICA Tax (Schedule 4)Yes, line 57Yes, line 57NoNo

Taxation on Selling a Business

Businesses have two sale options that the advisor can choose from in RightCapital. Lump-Sum payments reflect full payment of sale proceeds in the designated year. Installment years reflect payments over the number of years indicated starting in the year of sale. When using an installment sale, advisors can also add in an interest rate.

When selling a business within two years of the year of purchase, RightCapital will apply short-term capital gain rates on any gains. If the sale occurs after two or more years, any gains are taxed at long-term capital gains rates.

Capital gains are calculated by reducing the sale proceeds (as reflected within the Other Inflows tab of the Retirement > Cash Flows) by the Cost Basis of the Business (as entered within the Profile > Net Worth > Other section).


Qualified Business Income (QBI) Deduction

Under TCJA tax laws, a 20% deduction of business income applies for LLC, Partnership, S Corporation, or Self-employment income. RightCapital automatically accounts for this deduction for these types of Businesses that are added to your client’s plan. The Qualified Business Income deduction is shown on line 9 of the 1040 form found in the Tax > Tax Estimate > Details area.

RightCapital will include the QBI deduction for 20% of Business Income, capped at 20% of taxable income. The deduction is phased out based on income limits for a ‘Specified Services Business.’ By default, we assume that any business is a ‘Specified Services Business,’ meaning it is subject to the QBI deduction phase-out.

If the Business is not subject to this phase-out, the ‘Service Income’ box should be deselected within the Business card on the Profile > Net Worth tab or within the Self-employment Income card on the Profile > Income tab.

QBI Income Limits / Deduction Phase-Out

The following income limits and deduction phaseouts will apply to all 'Service Income" coming from a business or self-employment card.

Single FilersJoint Filers
$160,725 - $210,725$321,400 - $424,400

Example:

A couple’s pre-QBI deduction taxable income is $400,000. This $400,000 is in excess of the $321,400 threshold by $78,600. This means the couple’s applicable percentage would be 21.4% (100% - $78,600 / $100,000). Accordingly, in computing the QBI deduction, the couple would only be allowed to take into account 21.4% of the QBI.

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For additional assistance using business assets within RightCapital please contact Support.