In Settings and Assumptions > Taxes, enter the percentage of earnings from income on your taxable Regular Assets that our calculations should assume are long-term capital gains and thus will be taxed at the lower long-term capital gains rate rather than at the ordinary income tax rate.
An investor could owe capital gains tax in one of two ways:
1) A capital gain is incurred when an investment is sold for a profit. MaxiFi does not assign these capital gains until it sees withdraws from saving (which implies a sale of assets). The percentage of taxable earnings attributable to this kind of capital gain should be entered as capital gains percentage.
2) A capital gain can also be generated when a fund manager buys or sells securities and passes on these gains or losses to shareholders near the end of the year. These capital gains taxes are incurred in the year of the fund manager's purchase or sale of securities and are part of your tax obligation for that year. The long-term gains from such distributions should be entered as Dividends and Distributions.
Using 0% for these fields will result in the higher lifetime tax and is thus the most conservative assumption. Comparing 0% to 100% using an Alternative Profile will reveal the full range of the impact of these settings on annual discretionary spending.
See Capital Gains and Qualified Dividends for more details.