The Tax > Tax Estimate module in RightCapital provides an overview of tax rates and sample tax forms for each proposal by year through the end of the planning horizon. This module allows you to illustrate to clients their effective tax rate, ordinary income tax rate, and capital gains tax rate throughout their financial plan. You can also review sample tax forms, including the Simplified 1040, Schedules 1-3, Schedules A, B, and D, Form 6251 (AMT), and Taxable Social Security worksheet.
The Tax Estimate section is broken down into two subtabs: the Estimate tab, and the Details tab. See below for an overview of each.
The Estimate tab provides three graphs that illustrate the client's tax rates over their life expectancy. Using the toggle above the chart, you can choose between graphs that illustrate the effective tax rate, ordinary income tax rate, or capital gains tax rate. You can switch between viewing your current and proposed plans using the dropdown menu to the upper right of the graph.
The Effective tax rate graph illustrates a breakdown of taxes by type, highlighting Federal, State, FICA, and Local taxes separately. Effective tax rate percentages are calculated by dividing the amount paid by the client's adjusted gross income:
Pro-Tip: Adjusted Gross Income
You can find the client's AGI for a given year on Line 11 of the sample 1040 tax form, within the Tax > Tax Estimate > Details tab.
The Federal income tax bracket graph illustrates the client's ordinary income tax bracket (or marginal tax bracket) each year over their life expectancy:
The Capital gains tax bracket graph illustrates the client's capital gains tax bracket each year over their life expectancy:
Pro-Tip: Choose a Tax Law
As a reminder, you can choose which tax law to use within a plan by navigating to the Gear Icon > Settings > Tax Assumptions tab. This will impact the tax brackets being used within the projections.
The Details tab of the Tax Estimate module is home to the sample tax forms in RightCapital. Here you can view the Simplified 1040, Schedules 1-3, Schedule A, Schedule B, Schedule D, Form 6251(AMT), and Taxable Social Security worksheet. These forms are prepopulated with values based on the cash flow information and data entry inputs within each client plan:
Using the dropdown menus in the upper left, you can toggle between the different forms for each year of the future-looking projections. In the upper right you can choose between viewing your current and proposed plans.
The Sample 1040 tax form provides insight into a client's estimated federal tax figures each year. This screen reflects a "simplified" 1040, which is a shorter form only displaying key details and information that will apply to almost all clients:
Line 1 Wages, salaries, tips: Reflects total wages, salaries, tips etc. Less contributions to the client's 401(k) or comparable retirement plans, pre-tax insurance premiums, and tax-deductible expenses.
Line 2a Tax-exempt interest and 2b taxable interest: This value is based on the returns from bonds and cash in taxable accounts held in the client's asset allocation. Withdrawals from a taxable account are not needed to trigger interest on the 1040.
To view or customize the interest assumptions by asset class, you can navigate to the Gear Icon > Settings > Return Assumptions tab.
Line 3a Qualified dividends and 3b ordinary dividends: This value is based upon the returns from equities and 'other' investments held in taxable accounts within the client's asset allocation. Withdrawals from a taxable account are not needed to trigger dividends on the 1040.
To view or customize the dividend assumptions by asset class, you can navigate to the Gear Icon > Settings > Return Assumptions tab.
You can modify the percentage of dividends that are tax-qualified by navigating to the Gear Icon > Settings > Tax Assumptions tab.
Line 4b IRA distributions: This value represents any distributions (RMDs, manual distributions, Roth conversions) from 401(k) and IRA accounts.
Line 5b Pensions and annuities: This reflects any pension or annuity income entered in Profile > Income, or income/distributions from annuities or pension plans entered in the Profile > Net Worth section.
Line 6a Social security benefits and 6b Taxable amount: This reflects any social security retirement income entered in Profile > Income, in addition to spousal and survivor benefits. To see a greater breakdown, see Taxable Social Security.
Line 7 Capital gain or (loss): This reflects income from capital gains. This can occur as a result of taxable distributions/withdrawals, the sale of a property/business/lifestyle asset, liquidation of stock options/grants, or portfolio turnover. To see a greater breakdown of the capital gains, see Schedule D.
You can modify the percentage of capital gains that are assumed to be long-term by navigating to the Gear Icon > Settings > Tax Assumptions tab.
Line 8 Other income: Reflects other income (such as self-employment income, rental income, and business income) feeding in from the Schedule 1.
Line 9 Total income: Reflects the client's total income, which is the sum total of lines 1 - 8.
Line 10 Adjustments to income: Reflects additional deductions and adjustments to income feeding in from the Schedule 1.
Line 11 Adjusted gross income: This value represents the client / household's AGI for a given year (total income less adjustments to income).
Line 12 Standard deduction or itemized deductions (from Schedule A): This value will reflect the standard deduction based on the filing status, as well as itemized deductions (if using TCJA Sunset 2025 tax law or 2017 tax law). RightCapital will automatically apply whichever is higher between the standard deduction or itemized deductions each year.
The Filing Status can be adjusted in the Profile > Expenses > Tax and Fees data card.
The Tax law can be adjusted in the Gear Icon > Settings > Tax Assumptions tab.
Line 12b charitable contributions if you take the standard deduction: This reflects a charitable giving deduction up to $600, even if the client is taking the standard deduction (not itemizing).
Line 13 Qualified business income deduction: This value illustrates the QBI deduction under TCJA for any income associated with business types LLC, Partnership, or S Corp, as well as any 'Self-employment income' cards. The deduction reflects 20% of business income.
When using 2017 tax law, personal exemptions will be reflected on this line, rather than a QBI deduction. If TCJA is set to sunset in 2025, we will reflect QBI deductions on this line through 2025, and personal exemptions on this line from 2026 onward.
Line 15 Taxable income: This value represents the client / household's Taxable income for a given year (AGI less Lines 12 and 13).
Line 17: Reflects any AMT feeding in from the Schedule 2. More details can be found via the Alternative Minimum Tax form.
Line 19 Child tax credit: Reflects child tax credits for dependent children listed in the Profile > Family tab (up to $2,000 per child).
Line 20: Reflects any education credits for children in the plan with college goals.
Line 23 Other taxes: Will display and additional self-employment taxes feeding in from the Schedule 2.
Line 24 Total Tax: Total federal tax paid by the client in the chosen year.
Much of the information that feeds into the 1040 can also be found in the tax schedules and other forms. You can toggle between tax forms using the dropdown menu in the upper left:
The "Schedule 1-3" option will include the following:
Schedule 1 includes additional income sources no longer shown on the main 1040 screen, as well as additional adjustments and deductions.
Schedule 2 will show if clients need to pay the Alternative Minimum Tax (AMT). For more details, select "Alternative Minimum Tax" from the drop-down menu.
Schedule 3 shows additional credits and payments.
RightCapital also includes Schedule A, B, and D, as well as the form for Alternative Minimum Tax (Form 6251) and for Taxable Social Security.
Within joint client plants set to Married Filing Separately or Non-Married Filing Single, additional toggles will be added within the Tax Estimate module. As a reminder, the Filing Status can be adjusted in the Profile > Expenses > Tax and Fees data card.
In the Estimate tab, you will find a set of radio buttons above each graph that allow you to toggle between the client and the co-client's tax charts:
In the Details tab, there will be an additional filter in the upper right that allows you to toggle between viewing sample tax forms for the client, and for the co-client:
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