Currently my tax rate is 25% and this will likely push me into a higher tax bracket. How much of that $ 60,000 should I set aside for capital gains taxes? Besides holding it for 12 months, is there anything I can do to lower the tax burden?
2007-06-27 02:57:23 · 6 answers · asked by bettingman1229 1 in Business & Finance ➔ Taxes ➔ United States
Clarification: If I earn $ 60,000 from a stock sale (after factoring in stock purchase price), how much should I set aside for Capital Gains taxes. I live in MA and currently I'm in the 25% tax bracket.
2007-06-27 03:20:35 · update #1
Well, you won't be taxed on the full $60,000. You will only be taxed on the gain, which would be the difference between what you sell it at (currently $60,000) and what you bought it at. As far as the capital gains tax, it is a maximum tax of 15% and 5% tax for those in the 10% or 15% brackets. As long as you hold it for more than 12 months, your gain will be long-term gain, which is taxed at a preferential rate. You also may need to take into account state tax issues in regards to the stock. Massachusetts for example doesn't allow stock losses, and taxes gains at a rate of 5.3% for long-term and 12% for short term. One other way to lower your tax burden is to sell some stocks that you currently have losses on. You can use the losses to offset some or all of your gains.
2007-06-27 03:03:08 · answer #1 · answered by Anonymous · 1⤊ 3⤋
Besides holding the stock for more than one year, if you sell it at a gain, there is nothing that you can do to reduce the tax on the sale.
If you are in the 25% tax bracket because of the sale, and you will be jumping into the 28% bracket, then at worst, $16,800 of your gain will go to pay federal income tax. In fact, the increase will be less than $16,800 but you would need to do a mock tax return to find out the exact amount.
Massachusetts is going to tax your short-term capital gains at 12% flat tax. This gain is not co-mingled with your other income which is taxed at 5.3%. So the MA tax on your gain is $7,200.
Total taxes up to $24,000.
Holding the stock for a year will save you about $12,000 in taxes. Given your 25% bracket, splitting the sale into two years isn't going to save you much (maybe $1,500) if your sale is still short-term.
2007-06-27 12:28:30 · answer #2 · answered by ninasgramma 7 · 0⤊ 0⤋
That will depend upon what you paid for the stock. You are taxed on the gain, not on the sales price. If you paid $59,999, your gain would be $1 and you'd have to "set aside" all of 25¢.
Capital gains for property held for one year or less are taxed at your marginal rate. If your marginal rate is 25% then that's the tax rate. If it pushes you into a higher bracket, the amount over the bracket barrier will be taxed at the higher rate. The next bracket is 28% so you'd always be safe setting that much aside -- or paying it in on Form 1040-ES.
The only way to reduce the tax bite is to hold the property for MORE THAN one year. Then it's treated as a long-term capital gain and is taxed at a lower rate, normally 15%.
Addendum: 25% - 28% for Federal if it's short term, plus another 12% for MA. 15% for Federal and 5.3% for MA if it's long term. Long term is if it's held for MORE than one year, i.e. at least one year and one day.
2007-06-27 10:02:14 · answer #3 · answered by Bostonian In MO 7 · 3⤊ 1⤋
You and a good number of people that ask questions here clearly do not understand that there are a number of factors to go into calculating the tax on any give amount of earnings. Based on the information that you have provided you should set aside at least 25% but that number could increase to 38% depending on the state you live in and your filing status. If you are concerned you should visit with a tax professional. I do calculations like yours a couple of times a week and our firm does not charge for that service. You should find someone near where you live.
2007-06-27 11:42:51 · answer #4 · answered by ? 6 · 0⤊ 0⤋
Your question is impossible to answer due to the fact that the capital gains tax needs to know the cost basis of the stock. For example - even if you inherited the stock and the fair market value at the time you inherited the stock was $59,000 - your capital gain is only $1,000.
You need to provide more information!
2007-06-27 10:04:14 · answer #5 · answered by ForensicAccountant 4 · 1⤊ 0⤋
25% of $60,000 is $15,000.00.
Don;t frget that this counts as income and probably jumps you into the next tax bracket. Oh, you might have state income tax also.
Try to hold it for 12 months or pay the taxes.
2007-06-27 12:42:15 · answer #6 · answered by Tim 7 · 0⤊ 0⤋