Is the tax rate higher for income or capital gains?

Question

I've already accumulated about $45,000 in short term capital gains this year. I need to liquidate another $40,000 in stocks or sell part of an inherited IRA which, as I understand, will be taxed as income. Is the tax hit going to be the same either way?

Last year I had taxable income of about $53,000 with next to no capital gains. This year I expect about the same taxable income plus the capital gains.

Answer 1

Short term cap gains are taxed as ordinary income. LT gains are at a 15% rate, but that is set to expire in a few years (irrelevant to you). BTW, how did you get those kinds of gains? Time to share, LOL!

Answer 2

Short term capital gains are taxed at the same rate as ordinary income. Long term gains are taxed at a lower rate.

Try not to take the money out of the IRA if you're under 59-1/2 - you'd get hit with a 10% penalty in addition to the taxes as ordinary income.

Answer 3

All your short-term capital gains are taxed as ordinary income. They are added to your other income of $53,000. This will put you in a higher tax bracket of course.

The distribution from your inherited IRA is also taxed as ordinary income. There is no 10% penalty for distribution of an inherited IRA.

Check with the trustee of the IRA and a tax advisor to see if there is a way to stretch out the distributions to minimize taxes.