Interesting question, I was wondering the same thing. Let's see.
Note: I'm not directly answering your question of when/how, rather calculating an approximate tax amount using your circumstances; since it is small, I assume you don't need to make payments throughout the year.
Let's assume your $40k is 4% of your $1m stash invested in a taxable account in 100% stock index funds, for simplicity.
Those funds usually yield 2%, and you'll have ~6% capital gains on average on top of that.
So dividend income = $20k.
http://www.moneychimp.com/features/tax_calculator.htmThe tax depends on how much of that is qualified dividends.
If none are qualified, tax = $974.
If $10k+ are qualified (likely), tax = 0.
This is federal tax only; you'd need to account for a little more for state taxes, if applicable. The total amount is still small.
Now, capital gains. This is where it gets interesting.
Assuming you're single and your capital gains are predominantly long-term, you'd be in the 10% tax bracket, i.e. 0% capital gains rate.
But let's assume that for some reason your capital gains rate is 10%, to get an idea of the consequences.
You withdraw $20k every year, and we want to figure out how much is cost basis, and how much is capital gains.
Of course it depends on the accounting method you use for your cost basis -- with specific identification, your gains will vary depending on the lots your pick. But let's assume you use average cost basis, to get an idea of the average capital gains.
Let's also assume that the initial capital gains fraction is 50%; this is the total capital gains "growth" you got on your investments since you started investing. Obviously if your earning career was shorter, or you had worse returns, this will be lower; and vice-versa.
So 50% of $20k = $10k in capital gains -> $1k of taxes.
Over time, in FIRE, the fraction of capital gains in your stash will tend to increase from the initial value (50% in our example). This is because each year, the expected value of your stash increases slightly (say by 1% real after your 4% withdrawals), but the principle
always decreases, since your withdrawals eat away at it partially. This means that on average, your total capital gains in your stash will increase, and since you're using average cost basis, the capital gains fraction will tend to increase too, so you'll pay proportionally more taxes. In practice, with 5% real average return and 3% inflation, the capital gain fraction in your stash would go from 50% in year 1, to 53% in year 2, 55.6% in year 3, to 75% in year 13, 94% in year 40, etc., the closer you get to 100% the slower it increases, the closer you are to 0% the fastest it increases (if you start at 0% it increases ~5.8% per year). Anyway, your $1k of cap gain taxes will top out at $2k (inflation-adjusted) after 40+ years. Remember this is all in the assumption of 10% capital gains rate, in practice you'll probably get 0%.
So that's it! Very likely 0 taxes!