AGI, capital gains, and income interaction?
AGI, capital gains, and income interaction?
I'm curious how things like capital gains interact with income.
I know in retirement some advice is that if you are in the 15% tax bracket you can fill it up with capital gains at 0% gains rate.
This got me thinking--how do these interact exactly?
Do capital gains go on 'top'? On the bottom?
Example: Lets say I have $30,000 in earned income, and $15,000 in capital gains. (Filing singly)
my AGI is $45,000.
What rates do I pay on my income?
(Brackets:
10% for $0 - $9,225
15% for $9,225 - $37,450
25% for $37,450 - $90,750
)
Do I pay the 10% on the first $9,225 of income, 15% on the other $20,775, and then 0% on the first $7,450 of capital gains, and the usual 15% gains rate on the next $7,550?
(I.e., capital gains add on at the top?)
Total Tax: $5171.25
Or do I pay 0% on all the capital gains, but then 15% on $22,450 ($37,450-$15,000) of income, and 25% on the other $7,550 of income?
(I.e., capital gains are filled in from the bottom?)
Total tax: $5225
I know in retirement some advice is that if you are in the 15% tax bracket you can fill it up with capital gains at 0% gains rate.
This got me thinking--how do these interact exactly?
Do capital gains go on 'top'? On the bottom?
Example: Lets say I have $30,000 in earned income, and $15,000 in capital gains. (Filing singly)
my AGI is $45,000.
What rates do I pay on my income?
(Brackets:
10% for $0 - $9,225
15% for $9,225 - $37,450
25% for $37,450 - $90,750
)
Do I pay the 10% on the first $9,225 of income, 15% on the other $20,775, and then 0% on the first $7,450 of capital gains, and the usual 15% gains rate on the next $7,550?
(I.e., capital gains add on at the top?)
Total Tax: $5171.25
Or do I pay 0% on all the capital gains, but then 15% on $22,450 ($37,450-$15,000) of income, and 25% on the other $7,550 of income?
(I.e., capital gains are filled in from the bottom?)
Total tax: $5225
Re: AGI, capital gains, and income interaction?
This one sounds right at first glance. You could mess around with https://turbotax.intuit.com/tax-tools/c ... taxcaster/ to get a better feel for things.Morik wrote: Do I pay the 10% on the first $9,225 of income, 15% on the other $20,775, and then 0% on the first $7,450 of capital gains, and the usual 15% gains rate on the next $7,550?
(I.e., capital gains add on at the top?)
Total Tax: $5171.25
-
- Posts: 72
- Joined: Wed Sep 09, 2015 2:59 pm
Re: AGI, capital gains, and income interaction?
I do not understand what you mean by "top" and "bottom". I think you mean in the income section or adjustments to income. They are entered on some
line in the income section if my memory is right
line in the income section if my memory is right
Re: AGI, capital gains, and income interaction?
Have you tried to work through the capital gains worksheet? It can be found in the 1040 Instructions. For one thing you don't start with your AGI - you use your taxable income (after subtracting your exemption and either the standard or itemized deductions).Morik wrote:I'm curious how things like capital gains interact with income.
I know in retirement some advice is that if you are in the 15% tax bracket you can fill it up with capital gains at 0% gains rate.
This got me thinking--how do these interact exactly?
Do capital gains go on 'top'? On the bottom?
-
- Posts: 1209
- Joined: Sat Oct 09, 2010 3:52 pm
Re: AGI, capital gains, and income interaction?
+1 Form 1040 Qualified Dividends and Capital Gain Tax Worksheet 2014, Line 44. I spent maybe 2 hours making a spreadsheet using income info from other excel/google sheets, the only drawback is not having 2015 tax rates.
Re: AGI, capital gains, and income interaction?
For a pictorial way of thinking about this, see tfb's stacked bar chart (12/11/11)here viewtopic.php?t=86849 The discussion is about qualified dividends but the same principle applies to LTCG.
You also need to take into account deductions/exemptions by subtracting them from AGI to get taxable income (also any adjustments such as
IRA deductions).
You also need to take into account deductions/exemptions by subtracting them from AGI to get taxable income (also any adjustments such as
IRA deductions).
Re: AGI, capital gains, and income interaction?
Here is the stacked bar chart from this post I believe kaneohe is referring to:
I've built an Excel sheet based on this chart to not only calculate the Federal tax but to also show what brackets the Qualified Dividend Income plus Long Term Capital Gain (QDI & LTCG) and the Ordinary Income fall into. Specifically I wanted to confirm this comment:
If anyone is interested in duplicating this spreadsheet, here are the steps:
Select All, Copy, and Paste at Cell B1
Select All, Copy, and Paste at Cell C1
To repeat the calculation for other assumptions follow these steps:
The spreadsheet certainly isn't complete. E.g., It does handle Social Security Income, but it ignores the Alternative Minimum Tax. There are probably some bugs lurking. For anything important, you should confirm with something like TaxCaster.
Edit 9/28/2015 to revise spreadsheet formulas for copying and pasting. Fixes SS calc bug and makes assumptions more flexible.
I've built an Excel sheet based on this chart to not only calculate the Federal tax but to also show what brackets the Qualified Dividend Income plus Long Term Capital Gain (QDI & LTCG) and the Ordinary Income fall into. Specifically I wanted to confirm this comment:
Here is a calculation of 2015 for a single senior with no social security, a $4,000 personal exemption, a $7,850 standard deduction, and $10,000 of QDI / LTCG. In row 27 of column B he has $39,300 of ordinary income which pushes his Taxable Income right up to the top of the $37,450 15% bracket. Column C shows adding $10,000 of ordinary income which causes a 30% tax increase. The extra ordinary income is taxed at 15% plus the QDI / LTCG is now taxed at 15% instead of 0%. Column D shows adding another $10,000 which causes a 25% tax increase. The extra ordinary income is taxed at 25% while the QDI / LTCG remains taxed at 15%.Houseblend in his post [url=http://www.bogleheads.org/forum/viewtopic.php?p=2585514#p2585514]Re: Interesting Argument in Favor of Roth[/url] wrote:If you are at the top of the 15% bracket for taxable income, and have qualified dividends or LTCG, then the next dollar of Roth conversions will be taxed at the marginal rate of 30%, not 25%.
Code: Select all
Row Col A Col B Col C Col D
--- ------------------- ----- ----- -----
26 Tax exempt interest 0 0 0
27 Non-SS Ordinary Income 39,300 49,300 59,300
28 LTCG & QDI 10,000 10,000 10,000
29 SS Benefits 0 0 0
32 Deductions & Exemptions 11,850 11,850 11,850
38 Adjusted Gross Income 49,300 59,300 69,300
39 Taxable Income 37,450 47,450 57,450
40 Taxable QDI & LTCG 10,000 10,000 10,000
41 Taxable Ordinary Income 27,450 37,450 47,450
Code: Select all
42 Ordinary Income @ 39.6% 0 0 0
43 Ordinary Income @ 35.0% 0 0 0
44 Ordinary Income @ 33.0% 0 0 0
45 Ordinary Income @ 28.0% 0 0 0
46 Ordinary Income @ 25.0% 0 0 10,000
47 Ordinary Income @ 15.0% 18,225 28,225 28,225
48 Ordinary Income @ 10.0% 9,225 9,225 9,225
49 QDI & LTCG @ 20% 0 0 0
50 QDI & LTCG @ 15% 0 10,000 10,000
51 QDI & LTCG @ 0% 10,000 0 0
Code: Select all
52 Tax on Ordinary Income @ 39.6% 0 0 0
53 Tax on Ordinary Income @ 35.0% 0 0 0
54 Tax on Ordinary Income @ 33.0% 0 0 0
55 Tax on Ordinary Income @ 28.0% 0 0 0
56 Tax on Ordinary Income @ 25.0% 0 0 2,500
57 Tax on Ordinary Income @ 15.0% 2,734 4,234 4,234
58 Tax on Ordinary Income @ 10.0% 923 923 923
59 Tax on QDI & LTCG @ 20% 0 0 0
60 Tax on QDI & LTCG @ 15% 0 1,500 1,500
61 Total Tax 3,656 6,656 9,156
62 Change in tax 3,000 2,500
63 Change in non-SS Inc LTCG QDI 10,000 10,000
64 Marginal Rate 30.0% 25.0%
- Copy and paste three times from below at cells A1, B1, and C1 of an empty sheet.
- Enter Filing Status ("Single" or "Joint"), tax exempt interest, non-SS ordinary income, LTCG & QDI, and Social Security benefits into cells B25:B29.
- Enter Deductions and Exemptions into cells B30:B31. Enter "Std" to use the default amounts or a number to use a non-standard amount.
Code: Select all
Filing Status
"Std" Deduction
"Std" Exemption
Social Security 50% threshhold
Social Security 85% threshhold
0.1
0.15
0.25
0.28
0.33
0.35
0.396
=A4
=A5
=A12
=A11
=A10
=A9
=A8
=A7
=A6
0.2
0.15
0
Single or Joint Return
Tax exempt interest
Non-SS Ordinary Income
LTCG & QDI
Social Security Benefits
Deductions
Exemption
Deductions plus Exemption
Relevant Income for SS Calc
50% SS Taxable
85% SS Taxable
Total SS Taxable
Percent SS Taxable
Adjusted Gross Income
Taxable Income
Taxable QDI & LTCG
Taxable Ordinary Income
="Ordinary Income @ "&TEXT(A15,"#0.0%")
="Ordinary Income @ "&TEXT(A16,"#0.0%")
="Ordinary Income @ "&TEXT(A17,"#0.0%")
="Ordinary Income @ "&TEXT(A18,"#0.0%")
="Ordinary Income @ "&TEXT(A19,"#0.0%")
="Ordinary Income @ "&TEXT(A20,"#0.0%")
="Ordinary Income @ "&TEXT(A21,"#0.0%")
="QDI & LTCG @ "&TEXT(A22,"#0%")
="QDI & LTCG @ "&TEXT(A23,"#0%")
="QDI & LTCG @ "&TEXT(A24,"#0%")
="Tax on "&A42
="Tax on "&A43
="Tax on "&A44
="Tax on "&A45
="Tax on "&A46
="Tax on "&A47
="Tax on "&A48
="Tax on "&A49
="Tax on "&A50
Total Tax
Change in tax
Change in SS, non SS, LTCG QDI
Marginal Rate
Code: Select all
Single
7850
4000
25000
34000
0
9225
37450
90750
189300
411500
413200
=HLOOKUP(B$25,$B$1:$C$5,4,FALSE)
=HLOOKUP(B$25,$B$1:$C$5,5,FALSE)
=HLOOKUP(B$25,$B$1:$C$12,12-ROW(A15)+ROW(A$15),FALSE)
=HLOOKUP(B$25,$B$1:$C$12,12-ROW(A16)+ROW(A$15),FALSE)
=HLOOKUP(B$25,$B$1:$C$12,12-ROW(A17)+ROW(A$15),FALSE)
=HLOOKUP(B$25,$B$1:$C$12,12-ROW(A18)+ROW(A$15),FALSE)
=HLOOKUP(B$25,$B$1:$C$12,12-ROW(A19)+ROW(A$15),FALSE)
=HLOOKUP(B$25,$B$1:$C$12,12-ROW(A20)+ROW(A$15),FALSE)
=HLOOKUP(B$25,$B$1:$C$12,12-ROW(A21)+ROW(A$15),FALSE)
=B15
=B19
=B21
Single
0
39300
10000
Std
Std
=IF(ISNUMBER(B30),B30,HLOOKUP(B25,$B$1:$C$3,2,FALSE))+IF(ISNUMBER(B31),B31,HLOOKUP(B25,$B$1:$C$3,3,FALSE))
=B26+B27+B28+B29/2
=MIN(50%*B29,MAX(0,50%*MIN(B14-B13,B33-B13)))
=MIN(85%*B29-B34,85%*MAX(0,B33-B14))
=B34+B35
=IF(B29=0,0,B36/B29)
=B27+B28+B36
=MAX(0,B38-B32)
=IF(ISNUMBER(B28),MIN(B28,B39),0)
=MAX(0,B39-B40)
=MAX(0,B$41-B15)
=MAX(0,B$41-B16)-SUM(B$42:B42)
=MAX(0,B$41-B17)-SUM(B$42:B43)
=MAX(0,B$41-B18)-SUM(B$42:B44)
=MAX(0,B$41-B19)-SUM(B$42:B45)
=MAX(0,B$41-B20)-SUM(B$42:B46)
=MAX(0,B$41-B21)-SUM(B$42:B47)
=MAX(0,MIN(B$40,B$39-B22))
=MAX(0,MIN(B$40,B$39-B23))-SUM(B$49:B49)
=MAX(0,MIN(B$40,B$39-B24))-SUM(B$49:B50)
=B42*$A15
=B43*$A16
=B44*$A17
=B45*$A18
=B46*$A19
=B47*$A20
=B48*$A21
=B49*$A22
=B50*$A23
=SUM(B52:B60)
Code: Select all
Joint
15100
8000
32000
44000
0
18450
74900
151200
230450
411500
464850
- Select cells B13:B61 and copy right into column C.
- Update assumptions in cells C25:C31.
- Copy and paste the following formulas at cell C62.
- To add more columns, copy cells C13:C64 to the right and update assumptions in rows 25:31.
Code: Select all
=C61-B61
=SUM(C27:C29)-SUM(B27:B29)
=IF(C63=0,0,C62/C63)
Edit 9/28/2015 to revise spreadsheet formulas for copying and pasting. Fixes SS calc bug and makes assumptions more flexible.
Last edited by #Cruncher on Mon Sep 28, 2015 7:00 pm, edited 2 times in total.
Re: AGI, capital gains, and income interaction?
#Cruncher,
Once again, your willingness to share your expertise on this Board is amazing! I always look forward to anything that you post.
Thank you!
Ed
Once again, your willingness to share your expertise on this Board is amazing! I always look forward to anything that you post.
Thank you!
Ed
Re: AGI, capital gains, and income interaction?
I found the article by Michael Kitces at link below did a nice job of explaining the interaction of income, dividends, and capital gains at the top of the 15% bracket. Similar to the stack ups already shown, with a few examples to help clarify.
https://www.kitces.com/blog/understandi ... -in-basis/
https://www.kitces.com/blog/understandi ... -in-basis/
Re: AGI, capital gains, and income interaction?
For 2015 marital status Single, $4000 personal exemption, $6300 standard deduction, so the first $10300 of your income has an Adjusted Gross Income (AGI) of zero. For Married filing Jointly (MFJ), double every number above.
For Single tax filers, the next $9225 of AGI income to the top of the the 10% tax bracket, the tax is 922.50, on your first (10300 + 9225) $19525 of total income, effective rate 4.7% at the top of the bracket.
Next is the 15% bracket to 37,450 of AGI at the top of the bracket. The tax is 5156.25 on your first (10300 + 37,450) $47,750, effective rate of 10.8% at the top of the bracket.
The 25% bracket upper limit is 90,750 of AGI, there the tax is 18481.25 on (10300 + 90750) $101050, effective rate of 18.35%.
Your effective rate will be noticeably less than the top rate of whatever bracket you are in.
Note that only the portion of your cap gains that are more than the 15% bracket are taxed. Any cap gains in the 15% bracket are not taxed, only those that spill into the 25% bracket are then taxed at 15%. So your AGI is taxed then your cap gains are inspected to see how much of them are taxed, if any.
Some good Fairmark.com links:
http://fairmark.com/general-taxation/re ... inflation/
http://fairmark.com/general-taxation/re ... schedules/
but be careful to scroll to the correct table for your tax filing status.
For Single tax filers, the next $9225 of AGI income to the top of the the 10% tax bracket, the tax is 922.50, on your first (10300 + 9225) $19525 of total income, effective rate 4.7% at the top of the bracket.
Next is the 15% bracket to 37,450 of AGI at the top of the bracket. The tax is 5156.25 on your first (10300 + 37,450) $47,750, effective rate of 10.8% at the top of the bracket.
The 25% bracket upper limit is 90,750 of AGI, there the tax is 18481.25 on (10300 + 90750) $101050, effective rate of 18.35%.
Your effective rate will be noticeably less than the top rate of whatever bracket you are in.
Note that only the portion of your cap gains that are more than the 15% bracket are taxed. Any cap gains in the 15% bracket are not taxed, only those that spill into the 25% bracket are then taxed at 15%. So your AGI is taxed then your cap gains are inspected to see how much of them are taxed, if any.
Some good Fairmark.com links:
http://fairmark.com/general-taxation/re ... inflation/
http://fairmark.com/general-taxation/re ... schedules/
but be careful to scroll to the correct table for your tax filing status.
Re: AGI, capital gains, and income interaction?
did you mean that the taxable income is zero? From the 1040, http://www.irs.gov/pub/irs-pdf/f1040.pdf, AGI=Ttl income less adjustments;heyyou wrote:For 2015 marital status Single, $4000 personal exemption, $6300 standard deduction, so the first $10300 of your income has an Adjusted Gross Income (AGI) of zero. For Married filing Jointly (MFJ), double every number above.
..............................................................
taxable income = AGI less deductions and exemptions.
- Artsdoctor
- Posts: 6063
- Joined: Thu Jun 28, 2012 3:09 pm
- Location: Los Angeles, CA
Re: AGI, capital gains, and income interaction?
This is not accurate. The adjusted gross income is at the bottom of the first page of your 1040. On the second page, you then enter your exemptions and deductions. It is on the second page that you may well have a Taxable Income of zero, but that is very different than having an AGI of zero.heyyou wrote:For 2015 marital status Single, $4000 personal exemption, $6300 standard deduction, so the first $10300 of your income has an Adjusted Gross Income (AGI) of zero. For Married filing Jointly (MFJ), double every number above.