Author Topic: Why do I owe so much in taxes?  (Read 1150 times)

rokel

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Why do I owe so much in taxes?
« on: March 22, 2018, 11:24:58 AM »
I sold off some index funds in 2017 because I was worried about where the economy was heading and wanted to protect my downpayment for a house purchase. I made about $13000 in profit from the sale and also accumulated 5000 in dividends over the course of the year. I figured I would owe about $3000 in taxes but I owe more than double that. What am I doing wrong?

Slow2FIRE

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Re: Why do I owe so much in taxes?
« Reply #1 on: March 22, 2018, 11:29:18 AM »
What is your tax bracket?
Did you sell only shares older than 12 months?

rokel

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Re: Why do I owe so much in taxes?
« Reply #2 on: March 22, 2018, 11:33:55 AM »
Oh I wonder if the tax bracket is what messed me up. I think the sale of funds pushed me into the 28% bracket. I was in 25% with my salary alone.

thenextguy

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Re: Why do I owe so much in taxes?
« Reply #3 on: March 22, 2018, 11:39:12 AM »
Oh I wonder if the tax bracket is what messed me up. I think the sale of funds pushed me into the 28% bracket. I was in 25% with my salary alone.

There isn't a 28% bracket for capital gains, so it sounds like these were held less than a year, which means it's being treated as normal income.

rokel

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Re: Why do I owe so much in taxes?
« Reply #4 on: March 22, 2018, 11:44:32 AM »
No most were held for over a year. Only a small amount ($500) was from the same year.

MustacheAndaHalf

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Re: Why do I owe so much in taxes?
« Reply #5 on: March 22, 2018, 11:54:02 AM »
Try testing this in your tax software.  Create an experimental return with $100,000 income and $13,000 in long-term capital gains.  Now edit the $13,000 down to $3,000 and see how much less you would owe.  I would expect $1,500.

When you earn about $100,000, then the $12,500 of long-term capital gains is taxed at the 15% rate.  It should be impossible to pay double that.  The highest capital gains rate kicks in over $400,000 and is roughly 24% last year.  Even AMT doesn't charge 30%, if that applies.  So because of that, I suspect a misunderstanding or mistake is involved.

rokel

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Re: Why do I owe so much in taxes?
« Reply #6 on: March 22, 2018, 12:34:23 PM »
Ok good to know. I truly hope I made a mistake somewhere and that's the problem. Thanks for your help!

yachi

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Re: Why do I owe so much in taxes?
« Reply #7 on: March 22, 2018, 12:49:21 PM »
Ok good to know. I truly hope I made a mistake somewhere and that's the problem. Thanks for your help!

Make sure you have your cost basis in there, so the software is only looking at the gains.  It also doesn't hurt to put your information into a second software to check (I used creditKarma and Turbotax to check last year).