Tax Guru – Ker$tetter Letter

Q:

Subject: long term capital gains

 

Gentlemen,

I have a question.  Lets say a person has adjusted gross income of $14,000.  Lets also say that he sold common stock and had a gain of $60,000. Long term gains.  Would he be taxed on this gain at the lower tax rate or would the gain jump him up to the higher rate and and the gain taxed at the higher rate?  Also would his adjusted gross income be increased causing him to pay the higher tax on this income also?

thank you for your answer.

A:

While the nominal rates for long term capital gains (5% and 15%) are lower than normal income tax rates, the actual effective rate on a gain can be much higher because of the dozens of penalties levied on people with higher AGI. 

This is especially bad for senior citizens who are forced to pay Federal income taxes on 85% of their Social Security benefits if their AGI, including capital gains, puts them in the “evil rich” category of $25,000 for a single person and $32,000 for a married couple. 

You personal professional tax advisor can assist you in more detail with how this would affect your particular situation.

Good luck.

Kerry Kerstetter