definition of taxable income in capital gains tax computation

Forum|Forum|7 years ago
September 24, 2018
2 replies
0 views

I am looking into liquidating highly appreciated equity (stocks exercised from iso of my last employer) that will fall under long term capital gains over the coming years. After doing online research I have come to believe that unless I move away from new york to say FL (other states with 0 income tax) I can't avoid paying state income tax on any of my capital gains. For federal I found information that for joint filer like me if I may taxable income is below say $72,000 I pay $0 federal capital income tax. What is not clear is on what it means by taxable income of $72,000.

1) Is this all salary we get by working for another company?

2) Will any amount from the stock liquidation will be taken into account in taxable income?

3) Is $72,000 after deduction like employee contribution of eg $18,000/year 401k, $6000 health saving account, or before contribution?

Carl11_2

Employee

1) That's only one possible source of taxable income. For an EXTREMELY rough list, look at lines 7 through 22 of the 1040.

2) Yes.

3) taxable income is the money you are paid from any and all sources, minus allowed deductions. For example, in 2018 you will get a $12K standard deduction. If filing MFJ then it's $24K. So the first 12/24K of your gross income will be tax exempt for the sole reason that you breath. Then if you pay qualified mortgage interest on your house, that interest you paid in 2018 is deducted from your taxable income. Then there's tens of thousands of other possible deductions, of which all won't apply to you of course.

Basically, your taxable income is on line 43 of the 1040. That line is labeled "Taxable Income". On the 1040-A it's line 27.

K

ken-wAuthor

Employee

you answered yes to my question 2. that means that if i don't get any other income and stay jobless for the whole year my capital gain total must be below $72,000 in order for me to pay 0 federal income tax? if i go over that limit do i pay 15% of the difference in my total capital gain and $72,000?

Carl11_2

Employee

I don't see what gives you the impression that you won't have to pay taxes on a $72K long term capital gain. Your question 2 asks if the gain will be "taken into account". The unequivocal answer is yes, it will be taken into account without question. For a long term capital gain you will pay a minimum of 15% tax on that gain if your AGI puts you in a lower tax bracket, or a maximum of 25% on that gain if your AGI puts you in a higher tax bracket. There's nothing "tax free" about it.