I have capital gain of $19K whose tax rate is 0% and earned income of $11K whose tax rate is 10%. Does the standard deduction of $12K apply to earned income only?

Forum|Forum|7 years ago
June 1, 2019
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Best answer by Hal_Al

The simple answer is yes, the standard deduction if first applied to your earned income.

But that is not readily apparent, on form 1040; because it is just deducted from your total income (AGI).

To see how the tax calculation works, review the "Qualified dividends and capital gain tax work sheet".

Technically, it's not just your earned income that the standard deduction (and exemptions) is first deducted from; it's all income, other than long term capital gains and qualified dividends (income eligible for the 0-15% capital gains rate).

M

mesquitebean

Employee

Try running your figures through the free Taxcaster tool at the link below. There is an online version and also free Taxcaster mobile apps. But remember, Taxcaster is just a quick estimate of your refund.

<a rel="nofollow" target="_blank" href="https://turbotax.intuit.com/tax-tools/calculators/taxcaster/">https://turbotax.intuit.com/tax-tools/calculators/taxcaster/</a>

T

tomozeiAuthor

Employee

thank you. The total federal income tax will be 10% of $11K = $1,100 (no tax levied on the capital gain because I belong to the lowest bracket). How much tax return will I receive by using the standard deduction?

Hal_AlAnswer

Employee

The simple answer is yes, the standard deduction if first applied to your earned income.

But that is not readily apparent, on form 1040; because it is just deducted from your total income (AGI).

To see how the tax calculation works, review the "Qualified dividends and capital gain tax work sheet".

Technically, it's not just your earned income that the standard deduction (and exemptions) is first deducted from; it's all income, other than long term capital gains and qualified dividends (income eligible for the 0-15% capital gains rate).