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Capital gains taxes are marginal. You are mistaken. There are no cliffs to maneuver. For example, play with this calculator: https://smartasset.com/investing/

Capital gains taxes are marginal. You are mistaken. There are no cliffs to maneuver. For example, play with this calculator: https://smartasset.com/investing/capital-gains-tax-calculator#ZFXwG6cA6V https://smartasset.com/investing/capital-gains-tax-calculato...

fatnoah 8y ago
I think that calculator shows the opposite of what you're saying. There are different brackets depending on your overall income, but all of your capital gains are taxed at that rate. If the gains were truly taxed in a marginal fashion, some would be taxed at 0%, some at 15%, and the rest at 20%. I can also confirm this with my own taxes. I only had $10k in long term capital gains last year, but the entire amount was taxed at 23.8% by the federal government.
- CompelTechnic 8y ago
  That's because your other income raised you up to that bracket.
  - yebyen 8y ago
    So are they marginal, or based on brackets? Cause it sounds like they're bracket-driven, if the entire gain was taxed at 23.8%. What part am I not understanding? Is the idea that capital gains tax itself is marginal, but if your other income has already put you in that higher bracket, then you pay that rate? Edit: playing with the knobs on the calculator seems to indicate that's what it is.
    - danzig13 8y ago
      Capital gains is added on top of regular income so if you had $450k regular income then $50k long term capital gains, $38,850 would be taxed at 15% and the remainder at the top rate of 20%
      - yebyen 8y ago
        Thanks for explaining it clearly. I hate to ask for more, but it's a rare opportunity that my question about capital gains is not completely off-topic. Can you (or anyone) tell in a similar idea about how Capital gains losses work? I understand that there is a limit to how much loss you can claim against your gains in the coming year, and that you can claim the loss as a deduction in following years up to a limited number of dollars each year, and limited number of years, but what I don't know is what the losses can be claimed against. If I have capital losses this year, and I'm getting a refund this year for my income withholdings overpayment... then next year say I owe income taxes from underpayment, but I have that deduction from the previous year, can I cancel them out? Or do I need to report a capital gain in the next year in order to be able to "use up" the previous year's loss as a deduction? My understanding is I can't use capital losses to pay income taxes, but I am not a CPA. Perhaps this is a question for my accountant, and this should be a billable conversation, but this is just a question I've had since I started thinking about capital gains, and I've never been able to answer it for myself.
        danzig13 8y ago
        I’m not a CPA or accountant. Investopedia has a few articles on the subject. I think capital losses can completely cancel any capital gains - kind of obvious if you think about it - if you lose $10 on sales of stock A and gain $10 on sales of stock B you had not income from your activities. In addition, you can apply $3,000 in losses to reduce ordinary income (not taxes directly) and carry the remainder to following years. So on sale of stock A you lost $5,000, on sale of stock B you gained $1,000. You can eliminate the gain, have $4,000 left, reduce your taxable income of $100,000 to $97,000 using $3,000 more of the loss, then have $1,000 left over for following years. In the next years I think you can use that loss to reduce gains then income in the same way. Hope I’m right and that is clear.
        yebyen 8y ago
        Thanks for answering. That is clear, and it makes sense.

fatnoah 8y ago

I think that calculator shows the opposite of what you're saying. There are different brackets depending on your overall income, but all of your capital gains are taxed at that rate. If the gains were truly taxed in a marginal fashion, some would be taxed at 0%, some at 15%, and the rest at 20%. I can also confirm this with my own taxes. I only had $10k in long term capital gains last year, but the entire amount was taxed at 23.8% by the federal government.

CompelTechnic 8y ago
That's because your other income raised you up to that bracket.
- yebyen 8y ago
  So are they marginal, or based on brackets? Cause it sounds like they're bracket-driven, if the entire gain was taxed at 23.8%. What part am I not understanding? Is the idea that capital gains tax itself is marginal, but if your other income has already put you in that higher bracket, then you pay that rate? Edit: playing with the knobs on the calculator seems to indicate that's what it is.
  - danzig13 8y ago
    Capital gains is added on top of regular income so if you had $450k regular income then $50k long term capital gains, $38,850 would be taxed at 15% and the remainder at the top rate of 20%
    - yebyen 8y ago
      Thanks for explaining it clearly. I hate to ask for more, but it's a rare opportunity that my question about capital gains is not completely off-topic. Can you (or anyone) tell in a similar idea about how Capital gains losses work? I understand that there is a limit to how much loss you can claim against your gains in the coming year, and that you can claim the loss as a deduction in following years up to a limited number of dollars each year, and limited number of years, but what I don't know is what the losses can be claimed against. If I have capital losses this year, and I'm getting a refund this year for my income withholdings overpayment... then next year say I owe income taxes from underpayment, but I have that deduction from the previous year, can I cancel them out? Or do I need to report a capital gain in the next year in order to be able to "use up" the previous year's loss as a deduction? My understanding is I can't use capital losses to pay income taxes, but I am not a CPA. Perhaps this is a question for my accountant, and this should be a billable conversation, but this is just a question I've had since I started thinking about capital gains, and I've never been able to answer it for myself.
      - danzig13 8y ago
        I’m not a CPA or accountant. Investopedia has a few articles on the subject. I think capital losses can completely cancel any capital gains - kind of obvious if you think about it - if you lose $10 on sales of stock A and gain $10 on sales of stock B you had not income from your activities. In addition, you can apply $3,000 in losses to reduce ordinary income (not taxes directly) and carry the remainder to following years. So on sale of stock A you lost $5,000, on sale of stock B you gained $1,000. You can eliminate the gain, have $4,000 left, reduce your taxable income of $100,000 to $97,000 using $3,000 more of the loss, then have $1,000 left over for following years. In the next years I think you can use that loss to reduce gains then income in the same way. Hope I’m right and that is clear.
        yebyen 8y ago
        Thanks for answering. That is clear, and it makes sense.