Expenses

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.

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. If you have already filled out a detailed expense worksheet in either Profile > Goals or Dashboard > Budget, you can choose to copy the values into the Pre-Retirement Living Expense card via the "Copy From" button:

Retirement Expenses

Expenses starting with retirement can be entered on the Goals screen


To enter additional expenses, click the blue 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 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 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

Description

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 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.

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 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.

Tax and Fees

The Tax 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, Married Filing Separately, and Non-Married Filing Single.
  • AUM Fees: The fee will reduce all non-annuity invested asset returns by the percentage indicated in the AUM field (this includes bank accounts / the cash reserve)

State Taxes

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.

Local Taxes

To adjust municipal, city, and local taxes, navigate to Profile > Expense and click on the Tax and Fees card and adjust the Local tax percentage. Local tax can be assessed as a percentage of AGI or a percentage of gross income.

State Tax details

RightCapital incorporates state-specific tax rates, deductions, and exemptions for all states. We also support certain state-specific rules:

Social Security

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

For more information on Social Security taxation, refer to our Social Security Knowledge Base.

Qualified Distributions

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.

State Specific Deductions and Exemptions

Note: Deduction amounts are combined across both categories.

State

Pension/Annuity Deduction limit

401(k)/IRA Deduction limit

Arkansas

$6,000

$6,000

Colorado

$20,000

$20,000

Delaware

$12,500

$12,500

Georgia

$65,000

$65,000

Hawaii

Tax-free

No Deduction

Illinois

Tax-free

Tax-Free

Iowa

$6,000

$6,000

Kentucky

$31,110

$31,110

Louisiana

$6,000

$6,000

Mississippi

Tax-free

Tax-free

Montana

$4,370

$4,370

Exclusion only if Federal AGI is below: Single: $38,605; MFJ: $40,790

New Hampshire

No deduction

Tax-free

New Jersey

$50,000

$50,000

New York

$20,000

$20,000

Oklahoma

$10,000

$10,000

Pennsylvania

Tax-free

Tax-free

Rhode Island

$15,000

No deduction

Exclusion only if Federal AGI is below: Single: $84,700; MFJ: $105,850

South Carolina

$10,000

$10,000

Contact Us

For additional assistance within RightCapital please contact our Support team.

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