AGI - where is this pulled from?

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Last Post by Bill Hines, Advice-Only Flat-F... 3 years ago

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William Eaton

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September 29, 2023 11:44 am

(@eaton550)

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Joined: 6 years ago

In my PRC model, my AGI jumps up too high in year 3 of my model. I have entered something incorrectly for it to be this high. Where does Tabular Projections > Taxes > Adjusted Gross Income pull from? Another way to ask is "How is AGI calculated in PRC"?

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AGI

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William Eaton

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September 29, 2023 1:30 pm

(@eaton550)

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Joined: 6 years ago

As I research this, it appears that my Reportable Capital Gains takes a jump, which is what is causing the jump in Capital Gains to increase. Can someone help with where I see why my Capital Gains increased unexpectedly?

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Stuart Matthews

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(@smatthews51)

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September 29, 2023 5:54 pm

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William Eaton

@eaton550 Will, here's the explanation: You have a negative cash flow which results in a large withdrawal from your regular savings. You have a large amount of unrealized LTCG in that account so this results in a significant amount of reportable LTCG; however, you also have a similar amount of capital loss carryover which basically eliminates any LTCG taxes in the first year. The same negative cash flow continues in subsequent years but there's no longer any capital loss carryover to offset it, so the reportable LTCG do affect your AGI from then on. You also need to be aware that there's a one-year lag in the inclusion of reportable LTCG (due to the unscheduled withdrawals caused by your negative cash flow) in your AGI because of the issue with circular references described in the manual. You can see most of this on the Tab Projection > AGI page on the far right side.

Stuart

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Bill Hines, Advice-Only Flat-F...

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October 3, 2023 10:24 am

(@hines202)

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Also keep in mind the setting on Financial Assets->Management where you indicate whether to withdraw capital gains first when taking from your brokerage. It can play into this whole equation. LTCG rates (typically 15% are often preferable to income tax rates (0-37%) but it depends. If you have nontaxable funds to draw on (Roth, savings) you might mitigate some of that if the taxes are high in a particular year. The optimizer might also help guide you as to where to pull money from and when.

Keep in mind PRC is a long-term planning tool, and it's always best to do some pinpoint accurate tax decisions toward the end of the year to dial things in for the current year and following year. I use Holistiplan but I don't think there's a consumer version available (dinkytown.net?). Maybe Stuart will build one someday 🙂