Thursday, December 21, 2017

There are new capital gains rules in the tax reform bill that just passed the U.S. Congress.

This is important stuff to know: if you have big gains, you can avoid all taxes on them if they are held long-term (over one year) and your earned income is below a certain threshold, even if you're taking gains outside of a tax-sheltered account. This is why people like Warren Buffet derive most of their income from capital gains, not wages, because of the more favorable taxation.

"4. capital gains are defined a little differently

While capital gains tax rates didn’t change, how we talk about them did. Before, the 0%, 15% and 20% rates for long-term capital gains and qualified dividends applied to specific tax brackets. For example, you didn’t owe the 15% cap-gains rate until you hit the 25% income tax bracket.

Because the new rules change the income tax brackets, and because lawmakers seem to have wanted to maintain existing capital gains rates, those same long-term capital gains rates (0%, 15% and 20%) now apply to specific income thresholds:

The 0% rate applies for those with income up to $38,600 for single filers and up to $77,200 for joint filers

The 15% rate applies for single filers with income between $38,601 and $425,800 and joint filers with income between $77,201 and $479,000

The 20% rate applies for single filers with income above $425,800 and for joint filers with income above $479,000" -- A. Coombes

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