swupak wrote:THE QUESTION
Am I correct in concluding that the 0% tax rate on qualified dividends income doesn't reduce my tax because I have a large capital loss carryover?
This is not correct. If you are in 15% tax bracket, you will receive 0% tax rate on QDI which lowers your taxes. Your loss carryover gives you 3000 income reduction which reduces your AGI and thus your taxes.
BTW, you cannot use 15% tax rate to apply to all of your taxable income. Some of it will be taxed at 0%, 10% and some at 15%. If you earn enough to hit the 25% bracket by $1, only the last $1 of income will be taxed at 25%. The rest of your income is taxed at lower rates. The more you earn, the more you keep even if you bump up a tax bracket.
Dividends (qualified or non qualified) in taxable accounts add to your AGI.
Your pension income adds to AGI:
Your social security adds to AGI (but the portion added depends on your AGI). Once you cross a certain level, 85% of social security will be taxable (i.e. it will add to your AGI).
Your capital loss carry over will give you -3000 income reduction.
Let's say you receive 30,000 pension:
Qualified Dividends: 1,100
Capital Loss: -3000
Capital Loss: -3000
AGI: 28,100 (same as above)
Both scenarios have the same AGI. You will presumably take the same exemptions and deductions. You will find that your Total tax for scenario 1 where you received QDI will be lower than Scenario 2. Your extra 1,100 pension income in Scenario 2 will be taxed at as ordinary income rather than 0% resulting in higher tax.
The existence of the QDI in your tax return means you cannot take the number you calculate for taxable income (line 43 on the 1040 form) and run that through the tax tables to find taxes due. The tax tables don't take QDI into consideration. The best bet is to find some tax software to run your scenarios.
You can find 2008 tax software really cheap now. here's turbo tax 2008 for $5.58
http://www.amazon.com/TurboTax-Deluxe-F ... 983&sr=8-1
I think there are some free tax online deals as well. TaxAct comes to mind: