But not capital gains. 0% -> 15% -> 20% are not marginal and require careful maneuvering to stay in the previous bracket. Why the oversight for such a hugely relevant tax?
For example, play with this calculator: https://smartasset.com/investing/capital-gains-tax-calculato...
I can also confirm this with my own taxes. I only had $10k in long term capital gains last year, but the entire amount was taxed at 23.8% by the federal government.
What part am I not understanding? Is the idea that capital gains tax itself is marginal, but if your other income has already put you in that higher bracket, then you pay that rate?
Edit: playing with the knobs on the calculator seems to indicate that's what it is.
I understand that there is a limit to how much loss you can claim against your gains in the coming year, and that you can claim the loss as a deduction in following years up to a limited number of dollars each year, and limited number of years, but what I don't know is what the losses can be claimed against.
If I have capital losses this year, and I'm getting a refund this year for my income withholdings overpayment... then next year say I owe income taxes from underpayment, but I have that deduction from the previous year, can I cancel them out?
Or do I need to report a capital gain in the next year in order to be able to "use up" the previous year's loss as a deduction? My understanding is I can't use capital losses to pay income taxes, but I am not a CPA.
Perhaps this is a question for my accountant, and this should be a billable conversation, but this is just a question I've had since I started thinking about capital gains, and I've never been able to answer it for myself.
I think capital losses can completely cancel any capital gains - kind of obvious if you think about it - if you lose $10 on sales of stock A and gain $10 on sales of stock B you had not income from your activities.
In addition, you can apply $3,000 in losses to reduce ordinary income (not taxes directly) and carry the remainder to following years. So on sale of stock A you lost $5,000, on sale of stock B you gained $1,000. You can eliminate the gain, have $4,000 left, reduce your taxable income of $100,000 to $97,000 using $3,000 more of the loss, then have $1,000 left over for following years. In the next years I think you can use that loss to reduce gains then income in the same way.
Hope I’m right and that is clear.
https://taxmap.irs.gov/taxmap/instr/i1040gi-015.htm#w24811v1...
You'll see that there are breaks at 0% (Line 8/11), 15% (Line 15/20), and 20% (Line 23). Looking at the lead-up to line 23 is the clearest part.
Line 21 adds the part taxed at 0% (Line 11) and 15% (Line 19). Line 22 then subtracts that from the total gains (Line 12). That final amount is then taxed at 20%.