Join Early Retirement Today
Reply
 
Thread Tools Search this Thread Display Modes
Long Term Capital Gains Tax Question
Old 09-30-2020, 11:22 AM   #1
Recycles dryer sheets
 
Join Date: Oct 2015
Posts: 466
Long Term Capital Gains Tax Question

I'm about to switch gears and start drawing down from my taxable accounts and am trying to do some basic tax planning. Having run a business for my career with many outside investments, I had always leaned on my accountant to do my returns so have not dived into the weeds. Now, I am trying to run some very simple analysis, but feeling like I am missing something when I compare my simple by hand math with an online calculator. Perhaps some of you can help me see the light using the simple examples below.

Constants: Married Filing Jointly/Standard Deduction $24,800/Up to $80K 0% Tax, over $80K 15% Tax

Scenario 1: $200K Long term Capital Gain is only income
Calculator spits out Fed tax of $22,109 and I cannot figure out the math...
- $200,000 x 15% = $30,000?
- $200,000 - $24,800 = $175,200 x 15% = $26,280?
- $200,000 - $80,000 = $120,000 x 15% = $18,000?
Dots are not connecting??

Scenario 2: $200K Long Term Capital Gain + $25K Earned Income
Calculator spits out Fed tax of $26,809.
How do I reconcile this with simple math?
DawgMan is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 09-30-2020, 11:37 AM   #2
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 10,174
Long Term Capital Gain is taxed at 0% for the first $78,750 in income, so if all that is LTCG, then it's $0
__________________
Fortune favors the prepared mind. ... Louis Pasteur
Sunset is offline   Reply With Quote
Old 09-30-2020, 11:59 AM   #3
Recycles dryer sheets
 
Join Date: Oct 2015
Posts: 466
Quote:
Originally Posted by Sunset View Post
Long Term Capital Gain is taxed at 0% for the first $78,750 in income, so if all that is LTCG, then it's $0
For 2020, I read $80K and below is $0. Per my examples above, I am still not seeing how the math computes? How does the standard deduction come into play.
DawgMan is offline   Reply With Quote
Old 09-30-2020, 12:07 PM   #4
Recycles dryer sheets
Vincenzo Corleone's Avatar
 
Join Date: Jul 2005
Posts: 307
Quote:
Originally Posted by Sunset View Post
Long Term Capital Gain is taxed at 0% for the first $78,750 in income, so if all that is LTCG, then it's $0
I think for married filing jointly for 2020, the first $80,000 of long-term capital gains is taxed at 0%.

https://www.nerdwallet.com/article/t...ains-tax-rates
Vincenzo Corleone is offline   Reply With Quote
Old 09-30-2020, 12:14 PM   #5
Recycles dryer sheets
 
Join Date: Mar 2004
Posts: 177
Use this calculator

https://www.mortgagecalculator.org/c...calculator.php

Inputting $200,000 LT capital gain as the only income, and taking the Standard deduction of $24,800 for MFJ, the federal tax owed comes out at $14,480 (should be $14,280).

Edit: I left an ACA premium credit in there by mistake
__________________
too cheap to even use dryer sheets - never mind recycle them!
jj is online now   Reply With Quote
Old 09-30-2020, 12:19 PM   #6
Recycles dryer sheets
 
Join Date: Oct 2015
Posts: 466
Quote:
Originally Posted by jj View Post
Use this calculator

https://www.mortgagecalculator.org/c...calculator.php

Inputting $200,000 LT capital gain as the only income, and taking the Standard deduction of $24,800 for MFJ, the federal tax owed comes out at $14,480 (should be $14,280).

Edit: I left an ACA premium credit in there by mistake
You are correct, I am a knucklehead... I forgot to change status from Single to Married. I knew I stayed with DW for a reason!
DawgMan is offline   Reply With Quote
Old 09-30-2020, 12:31 PM   #7
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 27,212
Yes. $200,000 LTCG - $24,800 standard deduction = $175,200 of taxable income.

First $80,000 * 0%=$0, remaining $95,200 * 15% = $14,280

https://www.dinkytown.net/java/1040-tax-calculator.html

Add $25k of ordinary income then taxable income is $200,200... composed of $200 of ordinary income and $200,000 of preferenced income.... $200 ordinary income results in $20 tax at 10% then first $79,800 of preferenced income is at 0% and remaining $120,200 is at 15% resulting in $18,030 in tax... total tax is $18,050.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...target 65/35/0 AA TBD
pb4uski is online now   Reply With Quote
Old 09-30-2020, 12:56 PM   #8
Recycles dryer sheets
 
Join Date: Oct 2015
Posts: 466
Quote:
Originally Posted by pb4uski View Post
Yes. $200,000 LTCG - $24,800 standard deduction = $175,200 of taxable income.

First $80,000 * 0%=$0, remaining $95,200 * 15% = $14,280

https://www.dinkytown.net/java/1040-tax-calculator.html

Add $25k of ordinary income then taxable income is $200,200... composed of $200 of ordinary income and $200,000 of preferenced income.... $200 ordinary income results in $20 tax at 10% then first $79,800 of preferenced income is at 0% and remaining $120,200 is at 15% resulting in $18,030 in tax... total tax is $18,050.
This helps. So the bottom-line is my standard deduction eats up any earned income (non long term capital gains) first, then it's taxed at it's marginal rate(s), then my capital gain at it's rate?

Thanks.
DawgMan is offline   Reply With Quote
Old 09-30-2020, 01:05 PM   #9
Thinks s/he gets paid by the post
SecondCor521's Avatar
 
Join Date: Jun 2006
Location: Boise
Posts: 4,560
Quote:
Originally Posted by DawgMan View Post
This helps. So the bottom-line is my standard deduction eats up any earned income (non long term capital gains) first, then it's taxed at it's marginal rate(s), then my capital gain at it's rate?

Thanks.
I'm not @pb4uski, but yes, you're correct. You can think of it as investment income stacks on top of ordinary income, and the standard deduction eats up from the bottom. What's left is taxable at the various brackets.

Another thing to note is that, when figuring the capital gains taxes, any ordinary income uses up the capital gains brackets. So if you had, say, ~$80K in ordinary income and $20K in capital gains, the $20K in capital gains would *not* be taxed at 0% (even though it's less than the $80K 0% capital gains bracket) because the $80K in ordinary income used up that bracket. Although, of course, the ordinary income would be taxed at ordinary income tax rates.
__________________
"At times the world can seem an unfriendly and sinister place, but believe us when we say there is much more good in it than bad. All you have to do is look hard enough, and what might seem to be a series of unfortunate events, may in fact be the first steps of a journey." Violet Baudelaire.
SecondCor521 is offline   Reply With Quote
Old 09-30-2020, 01:24 PM   #10
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
pb4uski's Avatar
 
Join Date: Nov 2010
Location: Vermont & Sarasota, FL
Posts: 27,212
+1 Yes, the ordinary income is offset by standard deduction and then taxed at ordinary rates.... any preferenced income on top of ordinary income is taxed at 0% until the sum of ordinary income and preferenced income is $80,000... then any additional preferenced income is taxed at 15% (unless you income gets really high).

OTOH, if you had no ordinary income then the standard deduction offsets preferenced income.
__________________
If something cannot endure laughter.... it cannot endure.
Patience is the art of concealing your impatience.
Slow and steady wins the race.

Retired Jan 2012 at age 56...target 65/35/0 AA TBD
pb4uski is online now   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Long Term Capital Gains Harvesting (Math Check) jimbohoward69 FIRE and Money 14 06-12-2020 03:00 PM
question on long term capital gains DEC-1982 FIRE and Money 4 12-02-2015 08:28 AM
Long term capital gains and qualified dividends and 0% taxation haha FIRE and Money 18 01-13-2013 05:45 PM
Long term loss combined with long term gain dmpi FIRE and Money 9 12-21-2012 04:27 PM
Minimizing long term capital gains wanaberetiree Other topics 17 12-30-2011 02:19 PM

» Quick Links

 
All times are GMT -6. The time now is 07:26 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2020, vBulletin Solutions, Inc.