Question
Does the standard deduction apply to your calculated annual income for short term capital gains on stocks?
Suppose my annual income is at $56,000 for 2020 and I am filing as a single tax filer, which would entitle me to a $12,400 standard deduction. Can that $12,400 be subtracted from my $56,000 income to bring down my owed taxes in short term capital gains (as my annual income would only be $43,600) or does the standard deduction not apply when calculating capital gains?
Example: If I traded a stock with an initial value of $100 and sold it for a value of $1,000. I have a short-term capital gain of $900. Would my capital gains tax be $248 (as illustrated below) if the standard deduction didn't apply or $158 if the standard deduction applies.
| Tax Type | Marginal Tax Rate | Effective Tax Rate | Tax Amount |
| Federal | 22.00% | 22.00% | $198 or $108 |
| NJ State | 5.53% | 5.53% | $50 or $50 |
| Local | 0.00% | 0.00% | $0 |
| Total Capital Gains Taxes | $248 or $158 |
Please let me know if I my calculations are accurate for this example. Thank You!
