After Tax Income

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Belthazar
Posts: 1
Joined: Sun Apr 24, 2016 4:53 pm

After Tax Income

Post by Belthazar »

I have been using the program for a few years now – one of the best on the market. I have a question about FRP’s overall ‘after tax income’ calculation. I believe the taxable basis of each account type is 100% for simplicity.

Q: How does the tax calculation of ‘additional inputs’ figure into the after tax income when there are different types of income entered? For example, in the additional inputs section I entered taxable dividends (15% tax rate) under Misc. Income, and Pension Income (ordinary income tax rate) – both 100% taxable.

Q: Is the program taxing the different types of income, with different tax rates, entered in additional inputs? Or, is the tax treatment of the various Cash flow types treated the same?

I hope what I'm asking is clear :? . Let me know if the question has been asked and there is a link.

Thanks!

jimr
Posts: 634
Joined: Thu Feb 28, 2008 6:48 pm

Re: After Tax Income

Post by jimr »

Belthazar wrote:I believe the taxable basis of each account type is 100% for simplicity.
The tax basis of the taxable portfolio is 100%, but the tax basis of the tax deferred portfolio is 0%.
Q: How does the tax calculation of ‘additional inputs’ figure into the after tax income when there are different types of income entered? For example, in the additional inputs section I entered taxable dividends (15% tax rate) under Misc. Income, and Pension Income (ordinary income tax rate) – both 100% taxable.
As a general rule, dividend income should NOT be entered in additional inputs. The planner uses a total return approach to handle investment gains. Under this model, interest, dividends and capital gains income is blended together and is accounted for through the 'Portfolio Return' and 'Standard Deviation' (or investment style) inputs.

All portfolio gains (either from dividends, interest, or capital gains) are taxed each year at the 'Investment Tax Rate' as they occur. Since the simulation is responsible for modeling your portfolio's returns, it would be double counting to also enter a cash flow for dividends in additional inputs.
Q: Is the program taxing the different types of income, with different tax rates, entered in additional inputs? Or, is the tax treatment of the various Cash flow types treated the same?
All cash flow types that let you specify a taxable percent are taxed at the income tax rate.

I hope all that makes sense, but please don't hesitate to post a followup if it doesn't or it you have other questions.

Jim

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