Financial

Section 1 -- Overview for your Other Income in VeriPlan

Subject: Section 1 -- Overview for your Other Income in VeriPlan
by The Skilled Investor on May/16/2007 17:35:32

Section 1 -- Overview for your Other Income in VeriPlan

On the yellow-tabbed '4-YOUR OTHER INCOME' worksheet you can enter your 'Other Income' sources, which are taxed at ordinary income tax rates. These other income sources would include the categories of income below. Your inputs for these other income sources should be found on your IRS 1040 form. (Form 1040 line numbers below are for the 2005 tax year.)

* alimony (Form 1040 Line 11)
* other gains (Form 1040 Line 14)
* rental real estate (Form 1040 Line 17)
* royalties, partnerships, S Corporations, and trusts (Form 1040 Line 17)
* farm income (Form 1040 Line 18)
* 'other' income sources (Form 1040 Line 21)

The other income entries that you make on this worksheet are in addition to any recurring sources of income that are taxed at ordinary income tax rates and that you report on other VeriPlan worksheets, including the yellow-tabbed '2-Your Earned Income,' '3-Your Pensions & Annuities,' and '12-Your Tax-Advantaged Plans' worksheets. Please read the information on this worksheet carefully to avoid making entries that would duplicate income that you have reported elsewhere in VeriPlan.

For each of your other income sources, you may enter on this worksheet:

a) the dollar amount
b) the years from the current year that you expect to receive this type of other income, and
c) the expected real percentage growth rate above or below inflation.

For your inspection after you make your inputs, VeriPlan presents summary projections of your other income sources in the adjustments chart that follows below.

In addition to such recurring sources of other income that you might currently receive, VeriPlan also allows you to make both positive and negative other income entries for any projection year. Each of these annual entries can be projected to grow at different positive and negative real dollar growth rates relative to the rate of inflation. In Section 3, 'Projecting future changes to your Other Income,' VeriPlan explains how to use this capability. This powerful ability to make positive and negative dollar and growth rate entries for each year allows you model and adjust any future other income source that you expect to receive.

Some of your other income sources are derived from assets, which have a measurable fair market value that you can estimate. Assets with a discernable fair market value might include rental real estate properties, assets that pay royalties, partnerships, S Corporations, trusts, and farms. This worksheet can be the appropriate place to enter the income from those assets, if the income is taxed at ordinary income tax rates.

However, the underlying value of the assets from which you may derive this other income should be entered elsewhere in VeriPlan. Usually, you would enter the fair market value of these underlying assets on either the yellow-tabbed '9-Your Property' or '10-Your Other Assets' worksheets. When you enter fair market values for these assets on these two worksheets, you will be asked to project a real rate of appreciation in the value of those assets. When you do so, include only the expected rate of increase to the asset’s value or projected sales price. Do not include any of the annual income or yield that you enter on this worksheet. Doing this is similar to separating the total return on common stock into a retained capital gains portion and a paid-out dividend portion.

_________________________________________________________________________

Demonstrating a comprehensive projection for a professional couple with children, the VeriPlan tutorial can help you to understand what VeriPlan can do. Use this link to download a free copy of the VeriPlan tutorial file:

DOWNLOAD THE FREE VERIPLAN TUTORIAL NOW

S&P 500 Index Fund

Best No Load Funds

Pasadena Financial Planner

No Load Bond Funds

The Skilled Investor Blog