People should owe tax on their capital gains because it costs us (aka "the government of we the people") a lot of money to create and maintain an environment under which your investment has a chance to grow. For your 15% tax on capital gain, you got a market that is at least somewhat regulated and less likely to totally rip you off than if there were no regulation whatsoever. Protection costs money, so we send in some of the profits to help pay for this.
The rate is 0% if your income from all sources (incl. capital gains) places you in the 10 or 15% tax bracket.in your scenario you would pay:standard deduction and your exemption$1896 on your W2 income, an effective rate of 7.6%$15000 on your capital gains, 15%$16,896 on your total income for an effective rate of 13.5%lower than buffett's secretary YOU B@STARD!!!
high rise wrote:
Good points and I understood that.
Now my other question:
I saw a chart that said that people in the 10% and 15% brackets pay no capital gains tax in 2012.
So say I made $25,000 a year in W2 income but earned $100,000 in long term capital gains after selling a stock.
Would I pay $0 in capital gains for 2012? And 15% on the last dollar earned from my W2?
Or would I pay 15% on my last dollar earned since that is my W2 income and then get about $10,000 capital gains with no capital gains taxes due and then pay 15% on the $90,000 earnings?
rsbones wrote:
People should owe tax on their capital gains because it costs us (aka "the government of we the people") a lot of money to create and maintain an environment under which your investment has a chance to grow. For your 15% tax on capital gain, you got a market that is at least somewhat regulated and less likely to totally rip you off than if there were no regulation whatsoever. Protection costs money, so we send in some of the profits to help pay for this.
The best regulation of business is little to no regulation because then bad companies GO OUT OF BUSINESS rather than get bailed out or supported by political paybacks and the government isn't picking winners and losers.
Thanks for the info.
But in the second case if it is 10% and 15% tax bracket people pay 0% for all income, why wouldn't the little less than $10,000 in capital gains be tax free
Why wouldn't the earning from 25,000 to 35,xxx of my capital gains be tax free?
And then 15% of the $90,000 earnings be taxed at 15%?
nope, not tax free. you would be phased out of the 0% capital gains exemption because the government considers anyone making over the 15% limit in total income to be doing quite well for themselves.
high rise wrote:
Thanks for the info.
But in the second case if it is 10% and 15% tax bracket people pay 0% for all income, why wouldn't the little less than $10,000 in capital gains be tax free
Why wouldn't the earning from 25,000 to 35,xxx of my capital gains be tax free?
And then 15% of the $90,000 earnings be taxed at 15%?
darn it. I meant to look at that chart to see the actual numbers before responding but I forgot.
Say the 15% bracket goes to $35,000.
If I earn $25000 on my W2 and $9999 in capital gains, I would pay no capital gains.
But you are saying that if I earned $10,001 in capital gains and $25000 in W2 income, I would have to pay 15% on the total $10,001?
That doesn't make sense to me.
Bingo!The government thought it up, it doesn't have to make sense. I have to believe a scrnario like that doesn't come up all that much though.
high rise wrote:
darn it. I meant to look at that chart to see the actual numbers before responding but I forgot.
Say the 15% bracket goes to $35,000.
If I earn $25000 on my W2 and $9999 in capital gains, I would pay no capital gains.
But you are saying that if I earned $10,001 in capital gains and $25000 in W2 income, I would have to pay 15% on the total $10,001?
That doesn't make sense to me.
Check me out, im a book wrote:
reading if FUNdamental, reading comprehension (evidently) is not.
If you work for a paycheck, you are guaranteed that paycheck.
If you work for a percentage of profit, you are not guaranteed anything unless you produce that profit.
Cute rhetoric. Really. I mean it. Cute.
Once the work has been performed it is highly likely that you will get paid.
But the point that was obvious to anyone with even half a functioning brain was that having remunerative work is not guaranteed. I am sorry if your cranial capacity did not allow you to understand the point that others were making. My condolences.
high rise wrote:If I earn $25000 on my W2 and $9999 in capital gains, I would pay no capital gains.
But you are saying that if I earned $10,001 in capital gains and $25000 in W2 income, I would have to pay 15% on the total $10,001?
First, the amount you "earn on your W2" is not what you get taxed on. You take that amount, subtract your deductions and any exemptions, to arrive at your taxable income. Let's say you are single and earned $44,000 in gross wage income.
$44,000 minus the standard deduction of $5800 and a personal exemption of $3700 takes you to $34,500 taxable income and this is the limit for the 15% tax bracket.
You would pay 10% of the first $8,500 ($850)
You would pay 15% of the remaining $26,000 ($3900).
Total income tax of $4750. (meaning you really paid 11% taxes on your $44k wages).
Let's say that you made $40,000 in gross wages but then made $6,000 in long term capital gains. That'd be $40,000 minus the $5800 and $3700 for total taxable income of $30,500 taxed at the normal wage earning bracket rates. You'd pay 10% of the first $8500 ($850), plus 15% of the remaining $22,000 ($3300).
Then you'd have to look at your $6000 in capital gains. How much will you owe? You pay nothing on the first $4000 because that amount added to your wage income still fell into the 15% bracket. On the $2000 that pushed you over the 15% bracket, you'd pay the standard 15% long term capital gain rate ($300).
BTW, I'm not sure if this tax brake has been extended to 2012 yet. This year we might have to pay the regular capital gains rates...
Oops, that's tax "break".
BTW, the numbers in the example above show that the guy with $40k wages plus $6k capital gains for a total $46k income paid total of $4450 in taxes on his $46,000 income. That's a tax rate of 9.7%.
A guy who had $46k in wages instead with no capital gains, would pay more of course. He'd be paying tax on $36,500. 10% of the first $8500 ($850), 15% of the next $26,000 ($3900), then 25% of the remaining $2000 ($500), for a total tax bill of $5250, a tax rate of 11.4%.
What if the guy had zero wage income and all capital gains income? I think he'd take off his deduction and exemption to get to $36,500. Would he pay zero on the first $34,500 since it's below the 15% bracket threshold and only pay $300 on the $2000 he went over? For a total tax rate of only 0.6%? I think this might be the case.
Your last question is really the heart of the question what I was trying to ask.
If taxi cow tent is correct, if someone made 0 in wages and over the 15% marginal rate in long term capital gains that the person would have to pay 15% on long term capital gains on the entire amount of long term capital gains earned - not just the percent above the 15% marginal rate.
asdsdf wrote:
But I was already taxed on the money I invested. Now I'm being taxed again for saving and investing instead of just spending it?
only if you sell