Next Tax Bracket Tax Calculation

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billfromct
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Joined: Tue Dec 03, 2013 8:05 am

Next Tax Bracket Tax Calculation

Post by billfromct »

If a person is close to the top of the 12% Federal tax bracket with earned income, Roth conversions & LT capital gains (about $8,000) and because of the total income, now the marginal rates goes over into the 22% tax bracket by $2,000, how is that $2,000 in the next tax bracket (22%) taxed: the full 22% tax (ordinary income & Roth conversions) or the LT 15% capital gains rate?

bill
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retiredjg
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Re: Next Tax Bracket Tax Calculation

Post by retiredjg »

This is not a simple answer. It depends on how much is ordinary income and how much is long term cap gains or qualified dividends.

If the increase in income is from ordinary income, some of the increase will actually be taxed at 27% (15% in cap gains and 12% in ordinary income). If the increase in income is capital gains, the answer is totally different.

Remember that the marginal rates of 12% and 22% only apply to ordinary income.

You will have to give very specific numbers and a filing status to get an answer for this one.
EricGold
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Re: Next Tax Bracket Tax Calculation

Post by EricGold »

I'm under the impression it goes like this:

Add the LTCG to your ordinary income.
The fraction of LTCG in the 22% tax bracket will be taxed at 15%
Last edited by EricGold on Tue Apr 02, 2024 7:06 pm, edited 1 time in total.
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FiveK
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Re: Next Tax Bracket Tax Calculation

Post by FiveK »

For marginal tax rates, you can download the Excel spreadsheet that generated the chart shown at that link and use it to see your personal situation.
chillwill
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Joined: Fri Oct 27, 2023 7:33 am

Re: Next Tax Bracket Tax Calculation

Post by chillwill »

Here's a great tool to help visualize/estimate taxes with ordinary & LTG income.
https://engaging-data.com/tax-brackets/
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