Question on tax type order when estimating

[joesxm3]

I played with Turbo Tax for a while fudging numbers, but seemed to get somewhat inconsistent results (most likely my fault) so I decided to simply ask my question here.

This is more out of curiosity than actual need, but here is the question.

When estimating my taxes (single person) I have the impression that I can stack up the various types of income in the following order.

First, I can take the standard deduction as a negative number.

Second I can add in wages, interest, dividends and short term capital gain This would be at my earned income tax rate, which would be 10% on some 12% on most and maybe 22% on some.

Third I can add in long term capital gain, which would be either 0% or 15% depending.

I get the following scenarios:

No category 2 income. I should be able to have $40,400 LTCG plus $12,550 standard deduction for $52,950 and pay 0% taxes.

Category 2 income $12,550, LTCG $40,400, same thing 0% taxes.

Category 2 income $22,500, LTCG $40,400, I would pay 10% on the extra $9950 of category 2 income, 0% on the 30,450 of LTCG under $40,400 total income and 15% on the rest of the LTCG.

That is, the category 2 earned income comes first and would push the LTCG back with some in the 0% and some going into the 15% range?

Is this how it works?

Thanks.

 

[SecondCor521]

Yes, you've got it essentially correct. The key point is that LTCG taxes are calculated after accounting for ordinary income (your "category 2 income". You might want to play around with the calculator/visualizer here:

https://engaging-data.com/tax-brackets/

There are lots of other bits and bobs, but I'm leaving those out for now as it seems you're just interested in the basic structure and you have that part correctly understood.

 

[mrfeh]

You might want to play around with the calculator/visualizer here:

https://engaging-data.com/tax-brackets/

+1

That is the best tool I've seen for explaining tax calculations.

 

[oldtimer]

It is my understanding that qualified dividends are added to the LTCGs and use the capital gains tax rates. While dividends that are not qualified are considered ordinary income and use income tax rates.