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Subject:  Re: Penalty for reaching next tax bracket? Date:  3/23/2007  1:42 PM
Author:  irasmilo Number:  93229 of 127624

A further question, please...
If the earning of $1 above bumps one into the 25% bracket for the next dollar, what is the tax effect if the $1 is from LT Capital Gain from a stock sale?
Or, to make it more specific and interesting, consider a $100,000 or more LTCG over the $61,300 magic number.

Not that I intend to sell, mind you, just curious. I hope to let my stock cost basis step up at checkout time.

When you get down to your taxable income, you go to the qualified dividend and capital gain tax worksheet. Essentially, you subtract your qualified dividends and long term capital gains from your taxable income and determine the tax on what's left. Then you start adding the qualified dividends and capital gains back in. To the extent that you have room below the $61,300 number, those dividends/capital gains are taxed at 5%. Once you pass $61,300, any remaining qualified dividends and capital gains are taxed at 15%.


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