
Pay 0% Cap-Gains Tax
Because of a higher standard deduction in the new federal tax law, it is easier for many Americans to pay no long-term capital gains tax at all.
Because of a higher standard deduction in the new federal tax law, it is easier for many Americans to pay no long-term capital gains tax at all.
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Social Security benefits are taxable and can have the surprise effect of nearly doubling…
Social Security benefits are taxable and can have the surprise effect of nearly doubling your marginal tax rate — the amount of tax you pay on receiving an extra dollar of income. How much of your Social Security benefits will be taxed depends on your “provisional income.”
Provisional income is adjusted gross income plus one-half of your Social Security benefits plus any tax-exempt interest you receive (such as from municipal bonds). When provisional income is…
Example: You file a single tax return, have taxable income of $34,000 from a pension and IRA accounts, and receive Social Security benefits.
Normally, $34,000 of taxable income would place you in the 25% tax bracket. But in this income range, increasing income by $1,000 — perhaps by taking $1,000 from a traditional IRA to meet a financial need — increases the amount of your Social Security benefits that are taxable by $850. So, you owe 25% tax on $1,850, causing $462.50 of tax to be due. This $462.50 of extra tax resulting from $1,000 of additional income is a 46.25% marginal tax rate.
What to do: Check to see if such a “boosted” tax rate will apply to your situation in 2008. Use tax software to run the numbers, or have a tax adviser do it for you.
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