will my capital gains be mostly tax free

[Quantum Sufficit]

Hi my wife and I hold wellington as 100% of our portfolio. I have settled on this (probably) as my allocation as it (although not AS DIVERSIFIED- ie, large cap value) seems to throw off a moderate income and has weathered downturns well. It is a good all around fund. The only issue with the fund in taxable is that its dividends are 40% taxable in the 15% bracket as only 60%of its dividends are qualified.

With 2 M in this portfolio we have about 52k in dividends x 0.4 = 20,800 in taxable dividends. We do not have a mortgage so this would consume all of the standard deduction and go over I believe (standard ded. is around 20k).

It would have also had 28,000 shares x 2.26 in long term capital gains= 63k in longterm capital gains. So what would be my tax liability if the whole portfolio was in taxable accounts. In reality, 20% of the portfolio is in IRA's. I believe a married couple can earn around 95k and still remain in 15% bracket.

[kaneohe]

Rough numbers....52K div, 63K LTCG = AGI 115K less exemptions/deductions of 20K leaves taxable income about 95K. Top of 15% bracket about 74K so 21K in 25% bracket taxed at 15% so about 3-4K in taxes. Use taxcaster or HR Block tax calculator (google) for a better estimate.

from the Block calculator:

Taxable Income -$94700
Adjusted Gross income (AGI)$115000
std. deduction$12400
Personal exemptions$7900
Taxes + $3185Payments
You will owe$3185

[pb4uski]

Actually, since OP said ~20% is in tax-deferred accounts, that should drop the $115k of AGI down to ~$92k and TI down to ~$72k so there might be no federal tax. But you are right, OP just needs to run his situation through Taxcaster or similar tool.

I like Income Tax Calculator - Tax-Rates.org because it covers state income taxes as well.

[kaneohe]

Quote:

Originally Posted by pb4uski I like Income Tax Calculator - Tax-Rates.org because it covers state income taxes as well.

Slick-looking .........unfortunately it, like Taxcaster (which I had forgotten) seems not to handle extreme cases of QDIV/LTCG like OP's and gives a much higher number (14K)........there was a statement that it was calculating 15% on all of the QDIV/LTCG.

It also doesn't allow entry of total ordinary dividends/qualified dividends like the 1040 . You can do a workaround by lumping QDIV with LTCG but that wouldn't work if you had negative CGs. Their lumping of STCG w/ interest/dividends also looks suspicious but I couldn't enter a negative LTCG to see how LTCG and STCG would interact in this calculator.

[pb4uski]

I do work around by including QDivs with LTCG and unqualified dividends with interest. I wish the input was more granular. However, with the workaround the result is the same as TT.

What is a negative LTCG? I don't have any of those. That said, I concede that the input should allow LTCLs.

[kaneohe]

Quote:

Originally Posted by pb4uski However, with the workaround the result is the same as TT. .

The workarounds are perhaps not so useful for the folks who aren't as familiar with taxes.........asking for the taxable SS as input e.g. is a better case.

TT also used to be my go-to standard until this issue of extreme QDIV/LTCG came up a short time ago. I pointed it out to TT and, I believe, they conceded they had a coding error but as of today it remains unfixed . I've switched to the HR Block calculator which seems to calculate this type of situation correctly.

[kaneohe]

Quote:

Originally Posted by pb4uski I do work around by including QDivs with LTCG and unqualified dividends with interest. I wish the input was more granular. However, with the workaround the result is the same as TT.

Sorry, in my previous remarks, I was confusing TT w/ Taxcaster. I think the free Taxcaster has the error resulting in 14K taxes but I believe others have told me that TT (not free) does not have the error. I was unable to get what I believe is the correct answer using your linked calculator and doing a workaround so now I am confused.

Are you saying you can get a 3K+ tax using the linked calculator and the workaround or are you saying that both the linked calculator and TT give the same 14K+ tax and were you using TT to mean Taxcaster or the real Turbotax?

[pb4uski]

No, both TT and the linked calculator with the workaround give me the $3k+ tax result (also same income, AGI, TI). The tax result was within $35.

One odd thing that the calculator did was it showed exemptions of $7,800 but used $7,900 of exemptions in calculating TI from AGI, but that is a nit

[kaneohe]

OK, I'm stumped.........I input 20.8K for interest and (63+ 31.2)K for LTCG in the linked calculator and got 14+K for taxes. What am I doing wrong?
also MFJ, 2 exemptions, std deduction

[pb4uski]

Quote:

Originally Posted by kaneohe OK, I'm stumped.........I input 20.8K for interest and (63+ 31.2)K for LTCG in the linked calculator and got 14+K for taxes. What am I doing wrong? also MFJ, 2 exemptions, std deduction

I get the same result and adjusting the LTCG I think that calculator is screwed up. It worked ok for me since I was limiting income to the top of the 15% tax bracket where it seems to work ok.

This one seems to do it right as the result is $3+k which is about 15% of the excess of TI of $94.7k over the top of the 15% tax bracket of $72.5k. If I put those numbers in TT then I get ~$3,500 of tax.

Too bad too because the thing I liked about the taxrates.org calculator is that it included state income taxes.

[kaneohe]

ok, thanks for the confirmation that the previously linked calculator has a bug (same as Taxcaster). At first I didn't notice that "This one" was an active link and I was going crazy trying to understand what "This" was referring to. I had previously seen that moneychimp calculator link on another thread and agree that it seems to work ok for the purposes of OP.

[kaneohe]

Looks like the LTCG/QDIV bug in Taxcaster has been fixed in the 2014 version which appeared recently. Bug appeared when calculating with inputs such that
some LTCG/QDIV appeared in the 25% bracket and the 15% rate was applied to the whole amount instead of just the overflow.

[jebmke]

TaxAct free version is available for download. I haven't checked the calcs but the Capital Gains Worksheet should work as it did in the 2013 version.