Here's a clip from one of our Office Hours, where Ben goes over the Tax Report.
Below, see Ben Birken, our VP of Client Success and Engagement, walk through the Tax Report.
10:30 Going over the Tax Report
Key Figures - All of the critical information from the tax return. Information like the Total Income, AGI, Total Tax, Short Term/Long Term Capital Gains, and other information. If there is any confusion about what each term means, there are question marks on the side of specific terms to help explain what they mean.
10:59 What is the difference between Ordinary Income and Qualified Income?
Ordinary income is income obtained via wages, interest, dividends, and so on. Qualified Income is the income generated from capital gains and qualified dividends.
11:30 Is the MAGI number there?
The short answer is no. The long answer is because there are different definitions of MAGI depending on the application, there are different calculations of MAGI.
The "Modified Adjusted Gross Income Tiers" section on the right side of the Tax Report list out the different financial planning applications of MAGI to which a client may be subject. There are "eye" icons by these calculations that allow the advisor to show or hide each available MAGI tier in the report or not, depending on applicability to your client's situation.
There is also a MAGI calculation specific to any IRMAA (Income Related Monthly Adjustment Amounts) surcharges on Medicare Part B/D Premiums, which you can see on the "Medicare Part B/D Premiums for YYYY" section on the Tax Report as well.
15:56 How do you come to the brackets for Ordinary and Qualified Income?
Ordinary Income is not just based off of the taxable income. In order to figure out how much Ordinary Income you have, you have to first separate the Qualified Income from it. You have to separate the 2 incomes because the two are taxed differently.
The tax report will also develop an average rate, which is just your total tax divided by your total income. This is a simpler version of an average rate because we just wanted to display how the dollars-in were affected by the dollars-in.