Message Font: Serif | Sans-Serif
No. of Recommendations: 0
I understand the basics about tax brackets, ie that the first part of your income is taxed at 15%, then next at 28, and so forth (ie for simplicity if the cutoffs were 10k and 20k and I made $15k, then $10k would be taxed at 15%, and the remaining $5k would be taxed at 28%, thus giving me a total tax rate of about 19.5%)

What I want to check on is this situation. Let's say I decided I could live off stock trading alone. To make it easy lets say I earn $15k during the year in short term, and $15k in long term. The long term is taxed at 20% [using my #'s above, I think this is right....but don't worry about the %. I understand that the long term capital gains rates are lower if you are in certain lower backet(s)], under long term capital gains, but the short term, using my fabricated #'s above, would be taxed at about 19.5%. Thus, even though I brought in $30k, I managed to keep my taxes low by utilizing approaches with a combination of short and long term investments.

A further adjustment of investment portfolio could make it so all of my short term profits fall under the lowest bracket, and everything else is long term. Thus not only do I score a rock botton % for the short term profits, but I also get to use the even lower capital gains rates available to people in certain low bracket(s).

Sorry, I guess I'm thinking out loud instead of really asking a question. I just want to double check on this because it seems like a nice advantage to some....which I might be using next year. I understand that tax rates aren't everything, but details like this could make the annual % of short term vs long term less of an issue, in which case it might be nice to just sit back with the long term ones and drink a tropical drink of choice :)

Let me know if there are any blatant errors in my thought process here....or if it looks right. Thanks


(sending in tax money to the IRS quarterly will be my next question once I research it a little more, so hold off on comments on that for a couple of days :)
Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.