What am taxes?

[nototheman]

A simple question from a simple guy with a simple mind

If I have most of my assets in stocks, and cash out 20k or so every year with no day job, does it all count as regular taxable income like the first 13,850 are deductible and the balance gets taxed? Or am I good because I was taxed on that before I invested? Would I be cashing out the original stocks I bought and reinvesting the gains, thus keeping "gains" in the market and shielding them from tax? Does only federal tax apply, or state as well (I did used to live in a state with no income tax, and expect to live abroad in the future)?

Also I thought I read that the first 100k of capital gains are free of tax liability...does this refer only to gains that are converted to cash or also to "unrealized" gains that you don't sell? Or am I misremembering entirely? In either case I don't expect to make that much, that number seemed absurdly high but I wouldn't be surprised if there were some threshold albeit lower.

Apologies in advance if it's been asked before

 

[SecondCor521]

You're only taxed on the gains. So if you buy a share of stock for $100 and sell it for $300, then you will have $200 of capital gains that are taxable.

Before you apply the taxes, you can subtract your standard deduction ($13,850 in your case).

If you have no other income and are filing single, the first $44,625 of taxable capital gains this year is taxed at 0% at the federal level. You may owe state taxes, though.

If you have other income, like interest, ordinary dividends, W-2, 1099, or SS, it gets more complicated.

You can't choose to sell only the "principal" of your stocks and leave the "gain" invested. It just doesn't work that way. One sells shares, not dollars (at least in a taxable account).

Unrealized gains are currently not taxed. You're only taxed on gains when you sell.

The "first $100k" comment you heard was the 0% capital gains brackets for married people plus their standard deduction. It's actually a bit over $100K, but that's for married folks, not you. For you it's about half that - $13,850 plus $44,625.

Note that all of the above applies to *long term* gains, or stocks that you bought more than a year ago. Short term gains are taxed at ordinary income tax rates, so you generally want to only sell long term gains if you can manage to do so.

 

[SevenUp]

No changes to SecondCor521's good reply.

If you want to do more "what if?" calculations, the Tax estimation tools - Bogleheads wiki article lists some good ones.