This is where you enter in specific expenses. RightCapital will automatically create two cards for you to review: one for monthly Pre-retirement living expenses and the other for tax and fees.
In the Pre-retirement Living Expenses card, estimate the current monthly expenditures that have not already been captured.
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.
Medical expenses will be appropriately reflected as an itemized deduction within a financial plan. The medical expenses deduction threshold in 2023 is set at 7.5% of the household's AGI.
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 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.
Tax Deductible Expense Options
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 will be factored into tax calculations after the TCJA sunset in 2025 or immediately when using the 2017 tax law. If using TCJA no sunset tax law, the miscellaneous itemized deductions will not affect taxation within the plan.
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 are funded pre-tax from self-employment income cards and lower the client's AGI.
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.
The Tax Expense and Fees card illustrates personalized values for taxes and fees, including:
Local municipal or city taxes. Do not include state taxes. They are calculated automatically.
- 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, select between Married Filing Jointly and Married Filing Separately.
AUM Fees: The fee will reduce all non-annuity invested asset returns by the percentage indicated in the AUM field.
State income tax is automatically applied to a client's Plan, depending on the state in which they reside. This is determined when setting up the family profile or when setting up a primary home. This incorporates relocation — state taxation is automatically updated at the indicated date on the Primary Home Relocation Goal card.
RightCapital incorporates state-specific tax rates, deductions, and exemptions for all states. We also support certain state-specific rules:
Whether or not Social Security income is subject to state taxes is determined on a state-by-state basis. States that are subject to Social Security taxes include:
CT, CO, KS, MN, MS, MT, NE, NM, ND, RI, UT, VT
Whether or not qualified distributions are subject to state taxes is determined on a state-by-state basis. States that exclude qualified distributions from state tax calculations include:
IL, MS, NH, PA
For clients residing n New York, up to $20,000 in qualified distributions is deducted when calculating state income taxes.
Note: Deduction amounts are combined across both categories.
Pension/Annuity Deduction limit
401(k)/IRA Deduction limit
Exclusion only if Federal AGI is below: Single: $38,605; MFJ: $40,790
Exclusion only if Federal AGI is below: Single: $84,700; MFJ: $105,850