Tax Question from Tax Moron

[Mo Money]

Quick tax question for those Tax Gods out there:

I'm trying to estimate my taxable income for 2020.

If I sell an ETF or mutual fund that has increased in value, and that I've held over a year, I assume that only the LTCG is included in my taxable income?

So, for example, assuming I have no other income for illustration purposes, if I sell $50,000 worth of ETF shares I've owned for over a year, and my basis is $10,000, then my 2020 taxable income will be $40,000?

(No snickering, please.)

Thanks in advance for your input.

 

[rothlev]

Quick tax question for those Tax Gods out there:

I'm trying to estimate my taxable income for 2020.

If I sell an ETF or mutual fund that has increased in value, and that I've held over a year, I assume that only the LTCG is included in my taxable income?

So, for example, assuming I have no other income for illustration purposes, if I sell $50,000 worth of ETF shares I've owned for over a year, and my basis is $10,000, then my 2020 taxable income will be $40,000?

(No snickering, please.)

Thanks in advance for your input.

Correct you will pay tax on the gain, at long term capital gains rates as you have held for more than a year. Long term is a lower tax rate than ordinary income, if you stay in the 15% bracket you may not be taxed at all on the gain. State tax will vary by state. usually taxed at regular ordinary income tax rates,

 

[rothlev]

in your example with no other income, there would be a tax of 0

 

[Mo Money]

Got it; but so I'm sure I understand: In my hypothetical, my 2020 taxable income is $40,000, not $50,000?

Thanks.

 

[Alan]

Got it; but so I'm sure I understand: In my hypothetical, my 2020 taxable income is $40,000, not $50,000?

Thanks.

Correct. The figure $50,000 will be shown on Schedule D as the proceeds of the sale and capital gain of $40,000 will also be shown on Schedule D. $40,000 will also appear as capital gain income on line 6 of your 1040.

 

[rothlev]

your taxable income is figured after your standard or itemized deduction. which if you are single is 12,400, so AGI is 40k taxable income is 27,600. which is in the 12% bracket. so 0 tax on the federal

 

[pb4uski]

Got it; but so I'm sure I understand: In my hypothetical, my 2020 taxable income is $40,000, not $50,000?

Thanks.

You income will be $40,000 ($50,000 proceeds less $10,000 basis)... your taxable income will be less than $40,000 since it will be after the higher of the standard or itemized deductions based on your filing status.

 

[Mo Money]

Thanks so much, everyone.

 

[sengsational]

I'm afraid you don't qualify for full moron status; a full moron would not have understood the term "basis", and would not have included it in the OP. My broken record response to most tax questions is "type this year's data into last year's tax software for a PDG estimate of how things will turn out"

 

[kskmfire]

I use this Kitces article to understand how "income stacking" and taxes work.

Your 1099-B will show total sale amount. In your tax software you enter your cost basis (along with dates) and it calculates gains.

https://www.kitces.com/blog/long-te...one-higher-marginal-tax-rate-phase-in-0-rate/

Use taxcaster to fine tune your plan.

 

[pb4uski]

I prefer https://www.dinkytown.net/java/1040-tax-calculator.html over Taxcaster... easier to use IMO.

 

[ERD50]

One wrinkle. If you were having dividends re-invested, you could have some short term gains, you could have some wash sales.

That is why I prefer to not have dividends re-invested unless I'm doing it myself with tax considerations in mind.

-ERD50

 

[SevenUp]

I prefer https://www.dinkytown.net/java/1040-tax-calculator.html over Taxcaster... easier to use IMO.

The dinkytown and (what is apparently the same engine at) mortgagecalculator programs do appear the best of the web sites.

The Excel1040 and Case Study Spreadsheet programs appear the best of the spreadsheets.

"Best" meaning "calculating the most credits and additional taxes encountered by personal filers."

 

[COcheesehead]

One wrinkle. If you were having dividends re-invested, you could have some short term gains, you could have some wash sales.

That is why I prefer to not have dividends re-invested unless I'm doing it myself with tax considerations in mind.

-ERD50

If you have gains, short sales do not apply. If you have loses, they may apply and likely on no more than two lots resulting in little consequence especially if you download your tax info.

 

[SecondCor521]

One wrinkle. If you were having dividends re-invested, you could have some short term gains, you could have some wash sales.

That is why I prefer to not have dividends re-invested unless I'm doing it myself with tax considerations in mind.

-ERD50

OP probably could use specific identification to avoid selling the short term lots and/or lots with losses so as to avoid wash sales.

(While I agree with you about not reinvesting dividends for the reasons you mention, the specific ID method can help address them.)