USA New to Accounting -- Question about "How much time will cash last?"


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Hello all:

I am new to this forum and to Accounting as a field (so I apologize if I am not posting in the right section). My background is in Pure Math, but I am recently looking for a more specific career path and I do enjoy Accounting, despite its major difference from just "pure Math". I do have a question and any help will be appreciated. I started a recent Accounting internship and my supervisor has sent me this question (he says I can find help for this on my own time since he has no time to specifically train me). Here is the question (and again, I am sorry if I am not posting in the right section):

Objective: How much time will the cash (capital + interest earned) last given the following factors:

Taxpayer profile: Single U.S./NYS/C resident
This is his only income for tax purposes
Investment in a partnership in 2019: $2.5M
Yield per year starting in 2019: 10%, all interest income taxed at his highest ordinary tax rates (1st year $250K)
Cash to be withdrawn every year starting in 2020: $400K

How would I begin to prepare this? Any thoughts/help are appreciated.

Thanks!
 
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kirby

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You are going to project the future of the taxpayer's cash. So you have to forecast what will change over time and when . Over time investments earn interest, that interest gets taxed by the 3 tax authorities due in a certain month, and you need to assume which month the annual withdrawals are made. Project the cash balance monthly to see when it hits zero. Now you apply your background in math and off you go!
 
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Are you good at excel? You will have to figure out what his tax rate is given your jurisdiction, I am assuming a 40% rate and the 10% return is his part of partnership income. Depending on legal structures and what not it could be different.

yearequityincome(equity X 10%)Tax ( income x 40%)withdrawalending equity
2019​
2,500,000​
250,000.00 100,000.00 - 2,650,000.00
2020​
2,650,000​
265,000.00 106,000.00 400,000.00 2,409,000.00
2021​
2,409,000​
240,900.00 96,360.00 400,000.00 2,153,540.00
2022​
2,153,540​
215,354.00 86,141.60 400,000.00 1,882,752.40
2023​
1,882,752​
188,275.24 75,310.10 400,000.00 1,595,717.54
2024​
1,595,718​
159,571.75 63,828.70 400,000.00 1,291,460.60
 
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Thanks -- this is very helpful. I'm not great with Excel but good enough for things like these. Your post helps me visualize exactly how to organize this.
 

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