0% LTCG/div tax question

[steelyman]

Quote:

Originally Posted by pb4uski You may still be able to do something about it. Let's say that you have $x international fund in your tax deferred account and at least $x of [whatever fund] in your taxable account and your tax deferred account has an investment choice that is substantially similar to [whatever fund]. Then in your tax deferred account you sell the $x of international fund and buy $x of [whatever fund]. In your taxable account you sell $x of [whatever fund] and buy $x of international fund. The end result is your AA is not changed but your overall holdings are more tax efficient. Just make sure of the tax implications of a sale of the shares in the taxable account before proceeding.

Thanks, man - I will look into this.

[pb4uski]

Actually, it is preferable to have your fixed income investments in your tax deferred accounts since they generate the most taxable income and have your equities in taxable accounts. Also see Principles of Tax-Efficient Fund Placement - Bogleheads

[ripper1]

Quote:

Originally Posted by pb4uski I'm doing the same thing. Keep state tax in mind - mine will be 3% of gain even though federal will be 0%.

I don't think LTCG and dividends taxed at federal 0% becomes part of your AGI. So this shouldn't be taxed at the State level either. Can we have a discussion on that?

[scrabbler1]

Quote:

Originally Posted by ripper1 I don't think LTCG and dividends taxed at federal 0% becomes part of your AGI. So this shouldn't be taxed at the State level either. Can we have a discussion on that?

LTCG and (Qualified) dividends are part of the AGI even if they end up getting taxed at 0%. It is the special worksheet which determines the tax rate of LTCG and QD, and you don't start that worksheet until you figure out your taxable income. Not sure if we can have a discussion about whether or not they should be taxed at the state level because you could have as many as 50 different discussions.

[jebmke]

Quote:

Originally Posted by ripper1 I don't think LTCG and dividends taxed at federal 0% becomes part of your AGI. So this shouldn't be taxed at the State level either. Can we have a discussion on that?

In my state, which is a conforming state, AGI is carried over from the Federal return to the state. So divs and capital gains are included. Then they make adjustments for items that are not taxable by the state (like interest on US Treasury bonds).

[pb4uski]

In my state, the first $5k of LTCG is exempt from tax and the remainder is taxed like ordinary income. That is why I have state tax even though it is 0% for federal.

[scrabbler1]

Quote:

Originally Posted by jebmke In my state, which is a conforming state, AGI is carried over from the Federal return to the state. So divs and capital gains are included. Then they make adjustments for items that are not taxable by the state (like interest on US Treasury bonds).

My state (New York) is like this, too. You copy the data as it appears on your federal return then perform adjustments, both upward and downward, to the federal AGI. Upward adjustments include adding back interest from muni bonds issued in other states (i.e. a national muni bond fund). Downward adjustments include subtracting state income/property tax refunds. (I have some of each of these which have roughly offset each other over the years.) Then you get your New York AGI and continue from there, with all dividends and cap gains taxed as ordinary income.

[bondi688]

If all your income comes from long term capital gain and dividends from your investments, and the total amounts to 20,000 a year, do you pay no income tax, or do you pay income tax on the $20000 a year?

[pb4uski]

0 tax if all $20k of income is LTCG and qualified dividends in 2012. See TurboTax® TaxCaster - Free Tax Calculator - Free Tax Estimator

[bondi688]

pb4uski
Thanks for the answer. I looked at some articles just now: if there is no resolution of the fiscal cliff and the new tax rate kicks in in 2013, there is no 10% bracket, the lowest bracket is 15%, and it appears there is no 0% tax on LTCG and dividend anymore come 2013, there is a 10% tax rate on LGCG and dividend, even if your total income is inside the 15% bracket. Am I reading that correctly?

[pb4uski]

That sounds right but I haven't researched it. From what i have read/heard, I think it likely that the Bush-era tax cuts will be preserved for lower tax brackets. It is unclear if that will include 0% rate on qualified dividends and capital gain. If 0% is retained, then I have some additional gain harvesting to do in 2013, if not, then I'll focus on Roth conversions instead.