Short-term capital gains and the CTC

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Que1999
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Short-term capital gains and the CTC

Post by Que1999 »

I read somewhere that STCG are taxed as earned income, and since they're taxed as such, they count towards the $2,500 earned income requirement to qualify for the CTC.

For someone who has solely unearned income (pension), does that mean you would be able to sell $2,500 in STCG and qualify for the CTC?
kaneohe
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Re: Short-term capital gains and the CTC

Post by kaneohe »

Do you have a link to your source? Seems doubtful to me that STCG would qualify you for CTC. While true that STCG is taxed at ordinary income rates just like wages, that does not make them earned income. I think somebody is being very creative here.
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Que1999
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Re: Short-term capital gains and the CTC

Post by Que1999 »

https://www.gocurrycracker.com/maximizi ... convertkit

At the bottom of the article, just above the summary.
tj
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Re: Short-term capital gains and the CTC

Post by tj »

Que1999 wrote: Sat Oct 17, 2020 7:19 pm https://www.gocurrycracker.com/maximizi ... convertkit

At the bottom of the article, just above the summary.
The article does not say that STCG counts as earned income, just above the summary he mentions what he needs to do to create tax liability to utilize the credit. GCC has earned income from his blog.
kaneohe
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Re: Short-term capital gains and the CTC

Post by kaneohe »

The article has a misleading title: Maximizing the Child Tax Credit (even without earned income)
agree w/ tj's reply.
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Que1999
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Re: Short-term capital gains and the CTC

Post by Que1999 »

Seems that the author doubled down on his statement that selling $2500 in STCG is taxed as earned income and would qualify one for the CTC. Can anyone verify this information?
sycamore
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Re: Short-term capital gains and the CTC

Post by sycamore »

At first glance I'll say that it does count. The relevant publication is Pub 927: Child Tax Credit and Credit for Other Dependents

On form 1040, we know that short-term capital gains flows to Total Income and then to Adjusted Gross Income (line 8b).

Pub 972 mentions "earned income" in a few places including a worksheet but as far as I can see the starting point is Adjusted Gross Income but there's nothing obvious that specifically excludes taking away capital gains (or dividends for that matter).

Might just be a case of "earned income" for CTC purposes not having the same meaning as for other purposes (like IRA contribution eligibility).

Best way to tell for sure is to use a tax program to try it out.
clemrick
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Re: Short-term capital gains and the CTC

Post by clemrick »

STCG are classified as 'ordinary' income and while they are treated like earned income for levying taxes, they are not the same when qualifying for credits or deductions.
jj
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Re: Short-term capital gains and the CTC

Post by jj »

You're thinking of the Additional Child Tax Credit. There is no earned income requirement for the CTC, it flows from AGI, phases out at $400k MFJ.
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kaneohe
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Re: Short-term capital gains and the CTC

Post by kaneohe »

jj wrote: Sun Oct 18, 2020 6:04 pm You're thinking of the Additional Child Tax Credit. There is no earned income requirement for the CTC, it flows from AGI, phases out at $400k MFJ.
https://smartasset.com/taxes/all-about- ... ax-credits

" You need to have earned at least $2,500 to qualify for the CTC. Then it phases out for income above $200,000 for single filers and $400,000 for joint filers. If your earned income is above the applicable threshold, you will get a partial credit."
Last edited by kaneohe on Sun Oct 18, 2020 11:02 pm, edited 1 time in total.
MarkNYC
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Re: Short-term capital gains and the CTC

Post by MarkNYC »

kaneohe wrote: Sun Oct 18, 2020 7:37 pm
jj wrote: Sun Oct 18, 2020 6:04 pm You're thinking of the Additional Child Tax Credit. There is no earned income requirement for the CTC, it flows from AGI, phases out at $400k MFJ.
https://smartasset.com/taxes/all-about- ... ax-credits

You need to have earned at least $2,500 to qualify for the CTC. Then it phases out for income above $200,000 for single filers and $400,000 for joint filers. If your earned income is above the applicable threshold, you will get a partial credit.
The Child Tax Credit (CTC), which is generally nonrefundable, does NOT require earned income. A portion of the CTC is refundable. It is referred to as the Additional Child Tax Credit (ACTC) and it does require earned income.
kaneohe
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Re: Short-term capital gains and the CTC

Post by kaneohe »

MarkNYC wrote: Sun Oct 18, 2020 8:18 pm
kaneohe wrote: Sun Oct 18, 2020 7:37 pm
jj wrote: Sun Oct 18, 2020 6:04 pm You're thinking of the Additional Child Tax Credit. There is no earned income requirement for the CTC, it flows from AGI, phases out at $400k MFJ.
https://smartasset.com/taxes/all-about- ... ax-credits

You need to have earned at least $2,500 to qualify for the CTC. Then it phases out for income above $200,000 for single filers and $400,000 for joint filers. If your earned income is above the applicable threshold, you will get a partial credit.
The Child Tax Credit (CTC), which is generally nonrefundable, does NOT require earned income. A portion of the CTC is refundable. It is referred to as the Additional Child Tax Credit (ACTC) and it does require earned income.
Thanks for the correction and clarifying, Mark.

https://www.hrblock.com/tax-center/fili ... ax-credit/
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Que1999
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Re: Short-term capital gains and the CTC

Post by Que1999 »

Thanks for the clarification. :beer
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