Long term capital gains and qualified dividends taxation

[Hank]

My question is what happens to taxation of long-term capital gains and
qualified dividends right at the 15/25% marginal rate boundary?

Assume taxable income includes $10,000 of long-term gains and $10,000
of qualified dividends. The boundary for a single taxpayer is at
$34,500 for 2011 (the year of interest). Understood that if
taxable income is below that level, tax on the capital gains is zero,
and on the dividends is $500.

If the taxable income goes up to, say, $35,000, does the tax liability
on the gains and dividends step up to $1500 each?

Hank

 

[Arthur Kamlet]

My question is what happens to taxation of long-term capital gains and
qualified dividends right at the 15/25% marginal rate boundary?

Assume taxable income includes $10,000 of long-term gains and $10,000
of qualified dividends. The boundary for a single taxpayer is at
$34,500 for 2011 (the year of interest). Understood that if
taxable income is below that level, tax on the capital gains is zero,
and on the dividends is $500.

If the taxable income goes up to, say, $35,000, does the tax liability
on the gains and dividends step up to $1500 each?

LT capital Gains above the threshold, which I suspect is close to 35000,
get a 15% tax rate, but CGs below that threshold remain at zero pecent
tax.

 

[Phil Marti]

My question is what happens to taxation of long-term capital gains and
qualified dividends right at the 15/25% marginal rate boundary?  

Assume taxable income includes $10,000 of long-term gains and $10,000
of qualified dividends.  The boundary for a single taxpayer is at
$34,500 for 2011 (the year of interest).  Understood that if
taxable income is below that level, tax on the capital gains is zero,
and on the dividends is $500.  

No, it's zero, period, as long as taxable income is below the top of
the 15% bracket. BTW, there's no distinction at this stage between
LTCG and qualified dividends. They get added together at the start of
the tax calculation process, as you'll note on the worksheet in the
1040 instructions.

If the taxable income goes up to, say, $35,000, does the tax liability
on the gains and dividends step up to $1500 each?

There would be $500 taxed at 15%.

Phil Marti
VITA/TCE Volunteer
Clarksburg, MD