Taxation included or excluded on Cash reserve and liquidation needs

Practice exam volume 1 page 83, the cash reserve calculation.

The subject is taxable at 15%, the cash reserve equal to half of the total year liv exp and medical care for Joe’s father.

I assume the expenses is after tax, but the office answer did not consider tax effect.

anyone please give me a clue on this?

Another confusion on liquidation needs, during the process to calculate liquidation needs, tax is also an issue. Should I consider tax effect in calculation liquidation needs in individual IPS?

Thanks a lot!

I found this as well… it depends from year to year in the mocks as well.

I came across this as well. IMO, if a taxable client has a liquidity need of $125,000/yr from his/her portfolio, then I would say:

“Client has a liquidity need of $125,000/yr after taxes to pay for living expenses – adjusted for inflation – each year during retirement.”

…but if $200,000 needs to be withdrawn from the account before retirement (say for educational purposes or a down payment on a home), then be sure to remove the following amount from the asset base: $200,000 / (1 - tax rate) …before calculating the required return from the portfolio.

Hope that makes sense.

Is there a hint of tax exempt bonds in the portfolio - then I guess you may not consider it