I was playing with Turbo Tax tonight an started to wonder if I found another tax rate bubble like the one with social security.
Single filer.
$15,700 interest income (equal to the standard deduction)
$44,625 LTCG (equal to the 0% LTCG limit)
If I am recounting this correctly TT show $0 tax owed.
If I increase interest income by $1000, TT shows $250 tax owed.
So it seems that I now pay 10% on the $1000 of interest income, but it also pushes $1000 of LTCG into the 15% tax zone.
Am I correct in thinking that the extra $1000 of interest (or maybe ROTH conversion) is actually being taxed at an effective rate of 25%?
We talk of ROTH converting up to the top of the 12% range. It seems that saying this assumes there are no LTCG.
It seems to me that if there are LTCG then some portion of the ROTH conversion will be taxed at 12% but also trigger 15% on some LTCG, effectively being taxed at 27% on the margin.
Would it be more correct to suggest ROTH converting to (the top of the 12% range minus any LTCG amount) ?
Am I analyzing this properly?
Single filer.
$15,700 interest income (equal to the standard deduction)
$44,625 LTCG (equal to the 0% LTCG limit)
If I am recounting this correctly TT show $0 tax owed.
If I increase interest income by $1000, TT shows $250 tax owed.
So it seems that I now pay 10% on the $1000 of interest income, but it also pushes $1000 of LTCG into the 15% tax zone.
Am I correct in thinking that the extra $1000 of interest (or maybe ROTH conversion) is actually being taxed at an effective rate of 25%?
We talk of ROTH converting up to the top of the 12% range. It seems that saying this assumes there are no LTCG.
It seems to me that if there are LTCG then some portion of the ROTH conversion will be taxed at 12% but also trigger 15% on some LTCG, effectively being taxed at 27% on the margin.
Would it be more correct to suggest ROTH converting to (the top of the 12% range minus any LTCG amount) ?
Am I analyzing this properly?