12% bracket and Capital gains, interest and dividends tax

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Topic Author
thelateinvestor43
Posts: 170
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Location: Westbrook, Maine

12% bracket and Capital gains, interest and dividends tax

Post by thelateinvestor43 » Sun Dec 01, 2019 12:48 am

I'm only in the 12% bracket and was wondering about Capital gains and other taxes. Is it pretty much a moot point to have say $10k in a taxable being in the 12% bracket?

I heard that I won't pay any long term capital gains. What about taxes on the interest and dividends? Will that be at 12%?

Thanks

typical.investor
Posts: 1258
Joined: Mon Jun 11, 2018 3:17 am

Re: 12% bracket and Capital gains, interest and dividends tax

Post by typical.investor » Sun Dec 01, 2019 4:08 am

thelateinvestor43 wrote:
Sun Dec 01, 2019 12:48 am
I'm only in the 12% bracket and was wondering about Capital gains and other taxes. Is it pretty much a moot point to have say $10k in a taxable being in the 12% bracket?
Nothing is a moot point at bogleheads where obsessive is seemingly the norm.

In any case, is there no way to get it into a tax deferred account? Have you maxed out all possible contributions.

No, $10k won't cost much in taxes now, but I assume you will make more in the future.

thelateinvestor43 wrote:
Sun Dec 01, 2019 12:48 am
I heard that I won't pay any long term capital gains. What about taxes on the interest and dividends? Will that be at 12%?
Under $39,375 in income in 2019 means a 0% capital gains tax and a 0% qualified dividend rates. It depends on the year but a fund like VTSAX might have 90%+ qualified. And anyway, you shouldn't have a fund in taxable that issues yearly capital gains. Choose an ETF or a Vanguard mutual fund that has an ETF share class. Then you only have capital gains when you sell. Maybe it's a moot point now, but we are looking towards the future right.

Interest and unqualified dividends are at 12%.

Topic Author
thelateinvestor43
Posts: 170
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: 12% bracket and Capital gains, interest and dividends tax

Post by thelateinvestor43 » Sun Dec 01, 2019 7:36 am

typical.investor wrote:
Sun Dec 01, 2019 4:08 am
thelateinvestor43 wrote:
Sun Dec 01, 2019 12:48 am
I'm only in the 12% bracket and was wondering about Capital gains and other taxes. Is it pretty much a moot point to have say $10k in a taxable being in the 12% bracket?
Nothing is a moot point at bogleheads where obsessive is seemingly the norm.

In any case, is there no way to get it into a tax deferred account? Have you maxed out all possible contributions.

No, $10k won't cost much in taxes now, but I assume you will make more in the future.

thelateinvestor43 wrote:
Sun Dec 01, 2019 12:48 am
I heard that I won't pay any long term capital gains. What about taxes on the interest and dividends? Will that be at 12%?
Under $39,375 in income in 2019 means a 0% capital gains tax and a 0% qualified dividend rates. It depends on the year but a fund like VTSAX might have 90%+ qualified. And anyway, you shouldn't have a fund in taxable that issues yearly capital gains. Choose an ETF or a Vanguard mutual fund that has an ETF share class. Then you only have capital gains when you sell. Maybe it's a moot point now, but we are looking towards the future right.

Interest and unqualified dividends are at 12%.
Thanks bud! Yeah, you're right about "obsessive", but I realize everyone is just trying to help to their best and I guess I've been a bit of a pest with too many posts , but I'm excited and it's all new and I had tons of questions.

I'm doing my best in the investing "hobby", but "our best" is all we can do. I try not and get carried away at my age. I keep excited, but live life not too far in the future because we never know how much time we have on this earth and have to keep everything in perspective. My heart goes out to the poor kids dieing from cancer that never had a chance, people born blind or disabled, etc, etc. My old Italian nana used to say "When you complain look behind you and you see a blind man" or something similar. We ALL have to be thankful and appreciate what we DO HAVE and realize that there are others that are starving and sick and less fortunate than us. I am thankful that I still have my health but, I could die next year, there are no guarantees in life, but I'm now doing my best to prepare in case I happen to get "lucky" and live into my 70's!

You have to keep a balance though and keep your head up and be kind to others and love all people and keep reminding ourselves that "this is not a dress rehearsal, we only get one shot at it!

I keep thinking "darn, if I could go back 20 years!!", but that's a common thing that we all think and it does NO GOOD, BECAUSE we CAN'T go back only FORWARD and we're ALL in the same boat here!

I'm now trying to get my sister who's 36 started on the ROTH. She doesn't work because of social anxiety (I suffer from it too and parents, etc) and now I try and tell her that "I wished I could go back", etc, and it goes in one ear and out. Luckily her husband makes ok money, but I tell her (not bug her) that she needs to get a part time job and start a ROTH IRA, even if she only put's in a little for the next ten years! I told her "when you get to be my age, you'll regret it!" She has 2 young kids also.

Anyways, this is a great forum!
Thanks everyone!

HomeStretch
Posts: 2894
Joined: Thu Dec 27, 2018 3:06 pm

Re: 12% bracket and Capital gains, interest and dividends tax

Post by HomeStretch » Sun Dec 01, 2019 7:50 am

After you max out investing in any tax advantaged accounts (like a 401k or IRA), investing in a Taxable account makes sense at any income level.

Have you had a chance to check out the BH wiki to read up on investing topics as suggested by posters in your other threads? Here is a link to the tax section that discusses capital gains, etc.:
https://www.bogleheads.org/wiki/Outline ... _investors

Everyone’s tax situation is different. The best way to figure out the tax impact in your situation is to use TaxCaster or the “what if” scenario in tax prep software like TurboTax. You can put in your expected W2 and other income and deductions, then add in a stock sale for example to see how it affects your taxes.

Topic Author
thelateinvestor43
Posts: 170
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: 12% bracket and Capital gains, interest and dividends tax

Post by thelateinvestor43 » Sun Dec 01, 2019 7:54 am

HomeStretch wrote:
Sun Dec 01, 2019 7:50 am
After you max out investing in any tax advantaged accounts (like a 401k or IRA), investing in a Taxable account makes sense at any income level.

Have you had a chance to check out the BH wiki to read up on investing topics as suggested by posters in your other threads? Here is a link to the tax section that discusses capital gains, etc.:
https://www.bogleheads.org/wiki/Outline ... _investors

Everyone’s tax situation is different. The best way to figure out the tax impact in your situation is to use TaxCaster or the “what if” scenario in tax prep software like TurboTax. You can put in your expected W2 and other income and deductions, then add in a stock sale for example to see how it affects your taxes.
Thanks! Yeah the only reason of thinking about the taxable is to hold my savings money (that'd making NOTHING) until I either use it EMERGENCY or invest some of it, so I figured it could make a little interest there maybe.

HomeStretch
Posts: 2894
Joined: Thu Dec 27, 2018 3:06 pm

Re: 12% bracket and Capital gains, interest and dividends tax

Post by HomeStretch » Sun Dec 01, 2019 8:12 am

thelateinvestor43 wrote:
Sun Dec 01, 2019 7:54 am
HomeStretch wrote:
Sun Dec 01, 2019 7:50 am
After you max out investing in any tax advantaged accounts (like a 401k or IRA), investing in a Taxable account makes sense at any income level.

Have you had a chance to check out the BH wiki to read up on investing topics as suggested by posters in your other threads? Here is a link to the tax section that discusses capital gains, etc.:
https://www.bogleheads.org/wiki/Outline ... _investors

Everyone’s tax situation is different. The best way to figure out the tax impact in your situation is to use TaxCaster or the “what if” scenario in tax prep software like TurboTax. You can put in your expected W2 and other income and deductions, then add in a stock sale for example to see how it affects your taxes.
Thanks! Yeah the only reason of thinking about the taxable is to hold my savings money (that'd making NOTHING) until I either use it EMERGENCY or invest some of it, so I figured it could make a little interest there maybe.
A true emergency fund is best held in a liquid safe account like a high yield savings account or a brokerage money market fund. Rates are low so you’ll likely earn 1.7-2% unless you find a bank promo deal. Emergency funds are usually not invested in equities or bonds due to the potential for principal loss.

BH wiki page about Emergency Funds:
https://www.bogleheads.org/wiki/Emergency_fund
Last edited by HomeStretch on Sun Dec 01, 2019 8:12 am, edited 1 time in total.

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Watty
Posts: 17606
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Re: 12% bracket and Capital gains, interest and dividends tax

Post by Watty » Sun Dec 01, 2019 8:12 am

You also need to consider your state taxes.

If you have tax software you can do dummy tax returns to see the impact of different types of additional income including your state taxes. This will sometimes be more complicated than just looking at your tax bracket since you could be in an income range where some tax credit is being phased out. You can start by making a copy of your tax return from last year then just add $100 to one of the income figures to see the change in your taxes.

You can also use web sites like this one to set up a basic tax return estimate then add $100 to one of the income number, but most of them will not try to estimate your state taxes.

https://www.olt.com/main/home/taxestimator.asp

minesweep
Posts: 1255
Joined: Fri Mar 02, 2007 9:17 pm
Location: PA

Re: 12% bracket and Capital gains, interest and dividends tax

Post by minesweep » Sun Dec 01, 2019 8:39 am

thelateinvestor43 wrote:
Sun Dec 01, 2019 7:36 am
typical.investor wrote:
Sun Dec 01, 2019 4:08 am
thelateinvestor43 wrote:
Sun Dec 01, 2019 12:48 am
I'm only in the 12% bracket and was wondering about Capital gains and other taxes. Is it pretty much a moot point to have say $10k in a taxable being in the 12% bracket?
Nothing is a moot point at bogleheads where obsessive is seemingly the norm.

In any case, is there no way to get it into a tax deferred account? Have you maxed out all possible contributions.

No, $10k won't cost much in taxes now, but I assume you will make more in the future.

thelateinvestor43 wrote:
Sun Dec 01, 2019 12:48 am
I heard that I won't pay any long term capital gains. What about taxes on the interest and dividends? Will that be at 12%?
Under $39,375 in income in 2019 means a 0% capital gains tax and a 0% qualified dividend rates. It depends on the year but a fund like VTSAX might have 90%+ qualified. And anyway, you shouldn't have a fund in taxable that issues yearly capital gains. Choose an ETF or a Vanguard mutual fund that has an ETF share class. Then you only have capital gains when you sell. Maybe it's a moot point now, but we are looking towards the future right.

Interest and unqualified dividends are at 12%.
Thanks bud! Yeah, you're right about "obsessive", but I realize everyone is just trying to help to their best and I guess I've been a bit of a pest with too many posts , but I'm excited and it's all new and I had tons of questions.

I'm doing my best in the investing "hobby", but "our best" is all we can do. I try not and get carried away at my age. I keep excited, but live life not too far in the future because we never know how much time we have on this earth and have to keep everything in perspective. My heart goes out to the poor kids dieing from cancer that never had a chance, people born blind or disabled, etc, etc. My old Italian nana used to say "When you complain look behind you and you see a blind man" or something similar. We ALL have to be thankful and appreciate what we DO HAVE and realize that there are others that are starving and sick and less fortunate than us. I am thankful that I still have my health but, I could die next year, there are no guarantees in life, but I'm now doing my best to prepare in case I happen to get "lucky" and live into my 70's!

You have to keep a balance though and keep your head up and be kind to others and love all people and keep reminding ourselves that "this is not a dress rehearsal, we only get one shot at it!

I keep thinking "darn, if I could go back 20 years!!", but that's a common thing that we all think and it does NO GOOD, BECAUSE we CAN'T go back only FORWARD and we're ALL in the same boat here!

:D I'm now trying to get my sister who's 36 started on the ROTH. She doesn't work because of social anxiety (I suffer from it too and parents, etc) and now I try and tell her that "I wished I could go back", etc, and it goes in one ear and out. Luckily her husband makes ok money, but I tell her (not bug her) that she needs to get a part time job and start a ROTH IRA, even if she only put's in a little for the next ten years! I told her "when you get to be my age, you'll regret it!" She has 2 young kids also.

Anyways, this is a great forum!
Thanks everyone!
Your sister can open a Roth IRA, even if she doesn't work, because her husband is employed. Spousal IRAs contributions to IRAs are normally reserved for individuals with earned income, but an exception applies to married taxpayers filing joint tax returns

Topic Author
thelateinvestor43
Posts: 170
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: 12% bracket and Capital gains, interest and dividends tax

Post by thelateinvestor43 » Sun Dec 01, 2019 8:47 am

HomeStretch wrote:
Sun Dec 01, 2019 8:12 am
thelateinvestor43 wrote:
Sun Dec 01, 2019 7:54 am
HomeStretch wrote:
Sun Dec 01, 2019 7:50 am
After you max out investing in any tax advantaged accounts (like a 401k or IRA), investing in a Taxable account makes sense at any income level.

Have you had a chance to check out the BH wiki to read up on investing topics as suggested by posters in your other threads? Here is a link to the tax section that discusses capital gains, etc.:
https://www.bogleheads.org/wiki/Outline ... _investors

Everyone’s tax situation is different. The best way to figure out the tax impact in your situation is to use TaxCaster or the “what if” scenario in tax prep software like TurboTax. You can put in your expected W2 and other income and deductions, then add in a stock sale for example to see how it affects your taxes.
Thanks! Yeah the only reason of thinking about the taxable is to hold my savings money (that'd making NOTHING) until I either use it EMERGENCY or invest some of it, so I figured it could make a little interest there maybe.
A true emergency fund is best held in a liquid safe account like a high yield savings account or a brokerage money market fund. Rates are low so you’ll likely earn 1.7-2% unless you find a bank promo deal. Emergency funds are usually not invested in equities or bonds due to the potential for principal loss.

BH wiki page about Emergency Funds:
https://www.bogleheads.org/wiki/Emergency_fund
right , but the money is not ENTIRELY emergency fund.

EnjoyIt
Posts: 2869
Joined: Sun Dec 29, 2013 8:06 pm

Re: 12% bracket and Capital gains, interest and dividends tax

Post by EnjoyIt » Sun Dec 01, 2019 9:08 am

thelateinvestor43 wrote:
Sun Dec 01, 2019 12:48 am
I'm only in the 12% bracket and was wondering about Capital gains and other taxes. Is it pretty much a moot point to have say $10k in a taxable being in the 12% bracket?

I heard that I won't pay any long term capital gains. What about taxes on the interest and dividends? Will that be at 12%?

Thanks
It is never a moot point to have more money. Put it in the places you have available. If you have a choice between taxable and some other option such as a 401k or IRA , then put it there. Otherwise save in taxable. If I was in the 12% tax bracket, I would tax gain harvest every year to keep may cost basis as high as possible.

What do you think, will you be making more so that you are outside of the 12% tax bracket?

If this cash is for an emergency, I would keep it in a high yield savings account or money market account. You can also throw some of it in a Roth IRA as you can take out the principal without penalty after 5 years.

retiredjg
Posts: 38447
Joined: Thu Jan 10, 2008 12:56 pm

Re: 12% bracket and Capital gains, interest and dividends tax

Post by retiredjg » Sun Dec 01, 2019 9:09 am

thelateinvestor43 wrote:
Sun Dec 01, 2019 12:48 am
I'm only in the 12% bracket and was wondering about Capital gains and other taxes. Is it pretty much a moot point to have say $10k in a taxable being in the 12% bracket?
Without context, this question doesn't mean anything. If you mean "does it hurt to have $10k in a taxable account, I'd say "no, especially if that $10k is part of your emergency fund".

But you should not really "invest" an emergency fund. It should be in cash, money market, CDs, or maybe some in short term bonds (if you are willing to have the value go down some). None of those are going to raise your income a lot.

I heard that I won't pay any long term capital gains. What about taxes on the interest and dividends? Will that be at 12%?
As long as you stay under $39,375 taxable income (single) or $78,750 (MFJ), there would be no tax on long term cap gains. (Note these numbers are less than the top of the 12% bracket.)

Dividends from bonds and Interest would be taxed at 12%. Qualified dividends from stocks would be taxed like the long term cap gains (0% if you stay under the limits).

Topic Author
thelateinvestor43
Posts: 170
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: 12% bracket and Capital gains, interest and dividends tax

Post by thelateinvestor43 » Sun Dec 01, 2019 11:13 pm

retiredjg wrote:
Sun Dec 01, 2019 9:09 am
thelateinvestor43 wrote:
Sun Dec 01, 2019 12:48 am
I'm only in the 12% bracket and was wondering about Capital gains and other taxes. Is it pretty much a moot point to have say $10k in a taxable being in the 12% bracket?
Without context, this question doesn't mean anything. If you mean "does it hurt to have $10k in a taxable account, I'd say "no, especially if that $10k is part of your emergency fund".

But you should not really "invest" an emergency fund. It should be in cash, money market, CDs, or maybe some in short term bonds (if you are willing to have the value go down some). None of those are going to raise your income a lot.

I heard that I won't pay any long term capital gains. What about taxes on the interest and dividends? Will that be at 12%?
As long as you stay under $39,375 taxable income (single) or $78,750 (MFJ), there would be no tax on long term cap gains. (Note these numbers are less than the top of the 12% bracket.)

Dividends from bonds and Interest would be taxed at 12%. Qualified dividends from stocks would be taxed like the long term cap gains (0% if you stay under the limits).
So basically I won't pay any taxes save for State taxes in a brokerage if I put like $5k or something in the ETF SPY? Then I'll up it to $10k most likely and put the rest into a money market fund. What's a good money market fund?


I have an emergency fund and also part of it is "I may need this money in the next few years fund". So the "I don't know if I need this" money I'd like to "gamble a bit with" or "take a little risk", at least with some of it.

HomeStretch
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Joined: Thu Dec 27, 2018 3:06 pm

Re: 12% bracket and Capital gains, interest and dividends tax

Post by HomeStretch » Sun Dec 01, 2019 11:22 pm

OP, you have a number of recent threads on topics that overlap to some extent. Once you process the responses and decide on a game plan, consider posting your complete financial picture in the format found in “Asking Portfolio Questions”: https://www.bogleheads.org/wiki/Asking_ ... _questions

Topic Author
thelateinvestor43
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Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: 12% bracket and Capital gains, interest and dividends tax

Post by thelateinvestor43 » Fri Dec 06, 2019 2:09 am

Does the "turnover rate" generate long or short term capital gains? Would either matter in a taxable to me in the 12% bracket? I noticed that the Fidelity Balanced Fund FBALX has a rate of 60% and the FXIFX Fidelity Freedom 2030 Index Fund had 163% turnover rate!

Are those turnover rates anything to be concerned about?

Daryl
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Location: Malvern, PA (I like to sleep near my money!)

Re: 12% bracket and Capital gains, interest and dividends tax

Post by Daryl » Fri Dec 06, 2019 6:59 am

What type of account are we discussing? Tax treatment of investment returns inside a Roth IRA is very different than a "normal" / taxable investing account.

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: 12% bracket and Capital gains, interest and dividends tax

Post by retiredjg » Fri Dec 06, 2019 8:15 am

thelateinvestor43 wrote:
Fri Dec 06, 2019 2:09 am
Does the "turnover rate" generate long or short term capital gains? Would either matter in a taxable to me in the 12% bracket? I noticed that the Fidelity Balanced Fund FBALX has a rate of 60% and the FXIFX Fidelity Freedom 2030 Index Fund had 163% turnover rate!

Are those turnover rates anything to be concerned about?
https://www.thebalance.com/mutual-fund- ... ns-2466692 says that the turnover results in long term capital gains distributions.

Yes, the turnover rates should concern you although if you only have $10k in taxable it may not matter much. And if you have enough space left under the dollar limits I posted above, it will not matter at all.

However, the turnover on the FF 2030 Index fund is only 14%. You may have looked up the FF 2030 fund that is actively managed instead of the index fund version.

https://www.morningstar.com/funds/xnas/fxifx/quote

If you are trying to choose between these two funds, the FF index fund is the better choice.

Topic Author
thelateinvestor43
Posts: 170
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: 12% bracket and Capital gains, interest and dividends tax

Post by thelateinvestor43 » Fri Dec 06, 2019 8:23 am

retiredjg wrote:
Fri Dec 06, 2019 8:15 am
thelateinvestor43 wrote:
Fri Dec 06, 2019 2:09 am
Does the "turnover rate" generate long or short term capital gains? Would either matter in a taxable to me in the 12% bracket? I noticed that the Fidelity Balanced Fund FBALX has a rate of 60% and the FXIFX Fidelity Freedom 2030 Index Fund had 163% turnover rate!

Are those turnover rates anything to be concerned about?
https://www.thebalance.com/mutual-fund- ... ns-2466692 says that the turnover results in long term capital gains distributions.

Yes, the turnover rates should concern you although if you only have $10k in taxable it may not matter much. And if you have enough space left under the dollar limits I posted above, it will not matter at all.

However, the turnover on the FF 2030 Index fund is only 14%. You may have looked up the FF 2030 fund that is actively managed instead of the index fund version.

https://www.morningstar.com/funds/xnas/fxifx/quote

If you are trying to choose between these two funds, the FF index fund is the better choice.
Thanks! I was also looking at FBALX Fidelity Balanced and FFNOX Four in one index

retiredjg
Posts: 38447
Joined: Thu Jan 10, 2008 12:56 pm

Re: 12% bracket and Capital gains, interest and dividends tax

Post by retiredjg » Fri Dec 06, 2019 8:39 am

The Four in One has a higher stock to bond ratio than the 2030 fund (85/15 vs 70/30). Which do you want? They are both funds of index funds and reasonably tax-efficient. I would not use the actively managed Balanced fund in taxable because the others are more tax-efficient.

Topic Author
thelateinvestor43
Posts: 170
Joined: Fri Nov 15, 2019 2:02 am
Location: Westbrook, Maine

Re: 12% bracket and Capital gains, interest and dividends tax

Post by thelateinvestor43 » Fri Dec 06, 2019 10:36 am

retiredjg wrote:
Fri Dec 06, 2019 8:39 am
The Four in One has a higher stock to bond ratio than the 2030 fund (85/15 vs 70/30). Which do you want? They are both funds of index funds and reasonably tax-efficient. I would not use the actively managed Balanced fund in taxable because the others are more tax-efficient.
thanks!

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