FAQs

Question: How can I handle deferred compensation?

Answer:

With respect to deferred compensation, you have two choices:

1. Income only.

Enter deferred compensation on the Client Info > Income & Expenses > Wage-Like Income screen.

If you wish, you may click "more info," and override the amounts in the specific payout dates at the bottom of the screen with the payouts anticipated to occur in each payout year.

These will be taxed in the software as ordinary income.

If a different tax treatment applies, you may override the taxable income values on the View/Edit Taxes report, in each year, if necessary.

This approach will not show the deferred compensation as an asset.

2. Asset and Income.

It is a bit more complicated, but you can enter the deferred compensation as a "Cash & Investment" asset, showing no income and no appreciation.

Then on the "more info" screen, you can override the "View/Edit Annual Income" to show the payout years' incomes.

And also override "View/Edit Annual Value" to show the declining remaining value at end-of-year. So if there were four payments of $50,000 each, the View/Edit Annual Value, after your overrides, might look like this:

2019: 200000

2020: 150000

2021: 100000

2022: 50000

2023: 0

The table above is showing the asset value at the end of that year after the payments -- not the payments themselves.

The asset starts with a value of $200,000, which is the total of future anticipated payments.

As the payments are made, the value goes down.

So if there is a $50,000 payment in 2020, the asset value goes down from $200,000 at the end of 2019 to $150,000 at the end of 2020.

The payment of $50,000 in 2021 brings that asset value down another $50,000 by the end of 2021.

And so on, until the Deferred Compensation asset is worth $0.

You may enter the payments in nonwage income, as explained above, or by clicking the link to View/Edit Annual Income for the asset, and overriding the income amounts each year with the amount of payment being made.