No. of Recommendations: 31
Hi Engr27
Think of your household income subject to taxation as a stacked bar.

On the bottom stacks your ordinary income. This is income from wages, self employment, net rents, taxable interest, pensions, up to 85% of Social Security, non-qualified dividends, retirement plan withdrawals (except a roth IRA), royalties and so forth.

On top of this stack your combined qualified dividends + Net LTCG. You can combine them because they are taxed exactly the same.

Now, add up your deductions. These will come from three possible locations:
1. Any total on Schedule 1, line 36. These used be called 'above-the-line' deductions, as you got to deduct them without itemizing deductions.
2. The greater of your standard deduction or itemized deduction. For most today, the greater will be the standard deduction.
3. Qualified Business Income (or 199A deduction). This will apply if you are self employed and if you hold REITs in a taxable account. See line 9 of your 1040 for 2018

Add 1 & 2& 3 together and subtract it from the preceeding ordinary income. In the stacked bar analogy, take your deductions off the bottom of the stack, allowing the stack to 'drop down'.

Now, for Married Filing Jointly (MFJ) just draw a horizontal line across at $78,750 for 2019. Any Qualified Dividends + LTCG that fall below this line are taxed at 0%. Those above it are taxed at 15% up to $488,850, beyond which they'll be taxed at 20%. And just to complicate this a bit more, if you are MFJ and AGI>250,000, the QD + LTCG will be subject to an additional 3.8% tax.

In the example you give, for 2019 MFJ, the $50,000 of ordinary income AFTER deductions, the first $19,400 will be taxed at 10%. The balance up to $50,000, or $30,600 will be taxed at 12%. The $100,000 LTCG 'stacked' on top of the $50,000.....$78,750 - $50,000 = $28,750.... will be taxed at 0%. The remaining $100,000 - $28,750 = $71,250 will be taxed at 15%. So the total tax on this income would be $1,940 + $3,672 + $10,688 = $16,300.

If you PM me, I have an Excel SS that does all this with a stacked bar.

BruceM
Print the post  

Announcements

The Retirement Investing Board
This is the board for all discussions related to Investing for and during retirement. To keep the board relevant and Foolish to everyone, please avoid making any posts pertaining to political partisanship. Fool on and Retire on!
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
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.