In other words, long-term capital gains and dividends which are taxed at the lower rates WILL NOT push your ordinary income into a higher tax bracket. As your AGI increases, you begin to get phased out of itemized deductions, certain tax credits, and lose your eligibility for Roth IRA or deductible IRA contributions.Īnd now, the good news: long-term capital gains are taxed separately from your ordinary income, and your ordinary income is taxed FIRST. Whatever your reason, before you take those capital gains it's important to understand how it affects your tax burden.īad news first: Capital gains will drive up your adjusted gross income (AGI). Or maybe you want to use those gains for a large purchase after all, one of the reasons taxes are lower on long-term capital gains is to encourage investors to spend that money now instead of in the future. Maybe you're coordinating retirement withdrawals or straddling between tax brackets. There are any number of reasons to take capital gains. Plus, we'll show you some examples of tax planning opportunities that you might be able to benefit from when realizing your long-term capital gains.
#Capital gains tax brackets single code#
Understanding these two areas of the tax code can be tricky, so to help clarify things, we put together a primer on how these two parts of the tax code interact. Whether your company is about to go IPO, you accumulated company stock over many years and are retiring, or you luckily bought Amazon in 1995 (jealous!), you have to deal with the tax impact of a long-term capital gain. What you may not know is whether realizing these gains will cause your wages or IRA withdrawals to be taxed at a higher rate. Can Capital Gains Push You Into a Higher Tax Bracket?Īs an investor, you likely know that long-term capital gains (gains on assets held for over one year) are taxed at a lower rate than ordinary income taxes.
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