Another thing I didn't know

[F4mandolin]

Just noticed that I don't have to pay cap. gains....as long as I stay in the 15% tax bracket.

 

[Onward]

Long-term cap gains. 15% tax bracket or below.

 

[kaneohe]

ok........final exam question. assume you are filing Married Filing Jointly where the top of the 15% bracket is 72500 taxable income. Your taxable income is now 72499. You want to sell some stock with a LTCG of 10000
or 100000. Do you pay capital gains tax?

 

[Onward]

ok........final exam question. assume you are filing Married Filing Jointly where the top of the 15% bracket is 72500 taxable income. Your taxable income is now 72499. You want to sell some stock with a LTCG of 10000
or 100000. Do you pay capital gains tax?

If your LTCG is $10,000, you'll pay the feds 15% cap gains tax on $9,999.

 

[Cooked]

Just noticed that I don't have to pay cap. gains....as long as I stay in the 15% tax bracket.

F4, I had this same epiphany last december while playing around with TurboTax. This is a very important fact that we should all be very aware of. In my real life, I have shared this with a few people and their interest level is underwhelming. For a few hours planning and implementing per year I figure to save a few thousand per year, a very nice payback.

 

[LOL!]

Also don't forget that return of capital is tax-free.

So if you sell $100,000 of shares that you paid $50,000 for back in 2009, you will have $100,000 to spend because you won't pay any taxes on it. Wow! That could be $100,000 a year for life all tax free!

 

[Which Roger]

ok........final exam question. assume you are filing Married Filing Jointly where the top of the 15% bracket is 72500 taxable income. Your taxable income is now 72499. You want to sell some stock with a LTCG of 10000
or 100000. Do you pay capital gains tax?

As Onward indicates, you will pay 15% on $99999 and $1 will be tax-free. I did all of the number crunching just the other day to understand this. Your "Taxable Income", line 43 of form 1040, includes the 72499 you mention, plus the 100000, minus your deductions (which I'll omit), so line 43 will show 172499. Then line 44, "Tax", is more than just a lookup from the tax tables. It includes the computations from the "Capital Gains and Qualified Dividends" worksheet.

To really understand this, fill out line 44 in a sample return ignoring the worksheet, then do a second computation including the worksheet, and see how your tax changes.

 

[Which Roger]

F4, I had this same epiphany last december while playing around with TurboTax. This is a very important fact that we should all be very aware of. In my real life, I have shared this with a few people and their interest level is underwhelming. For a few hours planning and implementing per year I figure to save a few thousand per year, a very nice payback.

Are the "few people" you mention members of this group, or members of the "real world"? If the latter, I can believe that the interest is underwhelming. But if the former, I would think there would be a lot of interest. Some members have high enough incomes over which they don't have a lot of control that it wouldn't apply to them, but it also seems a lot are in the situation where they do have a lot of control over their income from year to year - all the interest in the ACA subsidies threads is evidence of this.

 

[Which Roger]

Also don't forget that return of capital is tax-free.

So if you sell $100,000 of shares that you paid $50,000 for back in 2009, you will have $100,000 to spend because you won't pay any taxes on it. Wow! That could be $100,000 a year for life all tax free!

This raises another complexity in tax planning: In a given year, do you cash in some taxable investments and realize some capital gains, staying within the 15% tax bracket, so the capital gains are tax-free, or do you take a distribution from an IRA, staying within the 15% tax bracket, so you won't be faced with a bigger tax bill when the RMDs kick in at age 70 1/2 and put you in a higher tax bracket? Just one example of a trade-off to be considered.

 

[LOL!]

^ You use Retirement Calculator - Parameter Form and TurboTax to plan your withdrawals and Roth conversions so that you don't have to ever pay Federal income tax again. Or you don't plan and pay lots of income tax for no good reason.

 

[Fermion]

^ You use Retirement Calculator - Parameter Form and TurboTax to plan your withdrawals and Roth conversions so that you don't have to ever pay Federal income tax again. Or you don't plan and pay lots of income tax for no good reason.

That calculator doesn't work for me. It keeps saying model error please correct the form but doesn't highlight or give you any info of where to correct.

Worth the price I paid to use it though.

 

[LOL!]

LOL!

 

[NanoSour]

I too have noticed that the OPR calculator has recently started to return "Model Error". Anyone else notice this. Been using this for many years and it just started this behavior with the same inputs I've always used.

 

[F4mandolin]

I wish I had to worry about bumping up against the $72,000 limit....not an issue for us. I'm just in the process of trying to figure out how to avoid as much US + UK tax if we move back to the UK in a few years.

 

[scrabbler1]

One little quirk to remember is that even if you in the 0% cap gains bracket, your taxes may rise slightly if you earn more dollars even while remaining in the 0% bracket. This happened to me a few years ago. I was deducting some of my HI premiums on Schedule A but when I had a cap gain distribution at the end of the year, it raised the 7.5% (now 10%) AGI threshold and lowered the amount of deductible medical expenses a little bit, raising my TI and tax bill a little bit. It was not a lot, but this is how I learned that the 0% bracket was not always 0%.

And don't forget about state income taxes which often treat cap gains income, regardless of type, as ordinary income.

 

[F4mandolin]

No state income tax for me. WA

 

[kaneohe]

Another useful quirk to know about........esp. for Roth converters who want to fill the 15% bracket. Be sure to check out your concept of what that means w/ tax software or a calculator. If you convert too much because of that misconception , you can run into the phantom 30% bracket when you were expecting 15%. Note that if this happens, you can recharacterize the offending amount to escape in the following year, but better to avoid than to cure the problem.

 

[Svensk Anga]

If you are in the zero percent bracket for long term capital gains, you are also in the zero bracket for qualified (stock) dividends. Just adds another wrinkle to the asset location juggling act.