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URL:  http://boards.fool.com/so-i-should-save-20-of-the-50-gain-for-22397662.aspx

Subject:  Re: is long term cap gains income? Date:  4/23/2005  7:50 PM
Author:  lorenzo2 Number:  78924 of 121452

So I should save $20 of the $50 gain for additional taxes?

No. Just 15%, or $7.50. As Phil said, your capital gain is a part of your gross income, and eventually, your taxable income. But when it comes time to actually compute the tax, the (long-term) capital gain is separated out and taxed at 15% (if you're in the 25% bracket).

You might find it instructive to play with some numbers to see how this works. Get a 1040 form and a Sched D, try it with and without cap gains, and see what the difference is. (Note that with cap gains, the tax is figured on a Sched D Tax Worksheet - that's where long-term capital gains are split off and taxed at a lower rate than ordinary income.)

(Don't forget that your state will be taxing those capital gains, too - the $7.50 per $50 gain is just for federal taxes.)

Lorenzo
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