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net worth and future expenses
Old 02-02-2014, 02:58 PM   #1
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net worth and future expenses

I was just curious if you deducted estimated future expenses/liabilities in your net worth figures.(taxes on taxable accounts, real estate sales fees and taxes, etc.)
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Old 02-02-2014, 03:08 PM   #2
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Recurring expenses such as annual property taxes are not generally deducted from net worth, but debt, such as car loans, mortgages, etc generally are. The reason being that if you extinguish the debt, your assets are reduced by the debt amount, but then the payments go away. But recurring expenses never go away, so they are just that - expenses, not assets or liabilities.
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Old 02-02-2014, 03:14 PM   #3
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Recurring expenses such as annual property taxes are not generally deducted from net worth, but debt, such as car loans, mortgages, etc generally are. The reason being that if you extinguish the debt, your assets are reduced by the debt amount, but then the payments go away. But recurring expenses never go away, so they are just that - expenses, not assets or liabilities.
Yeah...I just mean one time expenses in order to liquidate an asset. (Fees and sales tax on sale of real estate, estimating say15% tax on taxable account assets assuming that will have to be paid when withdrawn, maybe broker fee to sell business in order to cash out, etc.
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Old 02-02-2014, 03:20 PM   #4
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Yeah...I just mean one time expenses in order to liquidate an asset. (Fees and sales tax on sale of real estate, estimating say15% tax on taxable account assets assuming that will have to be paid when withdrawn, maybe broker fee to sell business in order to cash out, etc.
Most people do not factor these expenses into their net worth calculations, but I agree with your thought process that it makes sense to do so if you want to calculate your realistic net worth should you choose to liquidate all of your holdings and there were taxes and fees necessary to pay in doing so. It certainly is a very conservative approach to estimating net worth.
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Old 02-02-2014, 03:40 PM   #5
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I reduce my net worth by estimated income tax on taxable accounts and IRAs. It's easier for me to picture than to estimate income tax as a budget item. $1000 in a Roth IRA is worth more than $1000 in a tIRA, and $1000 in a taxable account with a basis of $1100 is worth more than $1000 with a basis of $500. Figuring in the probably tax helps me understand what I really have, even if I can't be certain what the actual tax rate will be when I do sell, distribute or convert.

I spend little, if any, time calculating my total net worth including my house, cars, etc., so I can't answer whether I consider those other one time expenses.
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Old 02-02-2014, 04:05 PM   #6
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When I do my annual (or more frequent) net worth calculation, I make no attempt to account for future tax liabilities as it would be just a guess. However, when my bank developed a financial plan with me, they did estimate taxes and included them in liabilities. Neither of us calculated future costs of real estate sales. After all, I might never sell it, and could bequeath it....or not. In any case, I see net worth as a snapshot of what I have now. One of my goals is to pay as little tax as legally possible.
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Old 02-02-2014, 05:57 PM   #7
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When trying to run retirement finance projections I have had to include taxes withheld and estimated tax payments as assets carried into the next year. I also discount pre-tax accounts with a marginal tax rate so that Roth conversions look a little more reasonable in the short term. Though I don't really use that NW number in the calculations.
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Old 02-02-2014, 07:02 PM   #8
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I reduce tIRA accounts value by estimated taxes to be paid. I don't deduct unpaid LTCG taxes as they go away at death - at least at my net worth.
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Old 02-02-2014, 08:00 PM   #9
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I don't discount anything. I estimate that my tax bill this year will be approximately zero including self employment taxes on DW's business earnings.
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Old 02-02-2014, 08:19 PM   #10
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I don't discount anything. I estimate that my tax bill this year will be approximately zero including self employment taxes on DW's business earnings.
Zero tax bill...I'd love to know how to do that.
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Old 02-02-2014, 08:25 PM   #11
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Two kids, standard deduction, income composed mostly of self employment earnings, qualified dividends and some LT cap gains. If you are an attentive retiree, you are treated by the tax code like the working poor.
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Old 02-02-2014, 08:47 PM   #12
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This is my favorite article on how to pay zero income taxes -

ROI: How to Avoid Paying Income Taxes - WSJ.com
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