Planning ahead Tax Bracket for 2016 and Capital Gains

[jeromedawg]

Hey guys,

So I'm anticipating being on a single salary in 2016 and my wife staying at home with our first expected child, and not working.

First off, when I file, should I file jointly as I am currently?

Secondly, is it correct in assuming that if the bracket ranges stay the same or similar for the 15% bracket, as long as my AGI is under I will not have to pay capital gains taxes (on any funds, stocks, etc that I sell then)?

If this is the case, with my longings to dump all my stocks and a couple of high-fee funds, should I defer until 2016 to sell them with the chance of not having to pay capital gains taxes?

Another assumption of course is that I don't get any raises that would potentially put me above $74,900 or whatever the top of the 15% bracket is in 2016 (unless I otherwise "offset" this by making a larger charitable contribution or something like that)

[Chuck]

1. If you are a single income household it is always better to file jointly, unless you are trying to keep assets separate. If you file jointly the upper limit of the 15% tax bracket is ~75k. It's only ~37.5k if you are filing separately. The former makes your idea much easier to execute.

2. Kinda. First, taxable income, not AGI, is the metric you should track. This is great, because Taxable Income is way easier to keep low than AGI. Not only will your 401k/HSA/IRA reduce it, but so will all of your deductions and credits. Mortgage interest, college expenses, moving expenses, child tax credit... All of these things will help keep your taxable income below the ~75k threshold that is the upper limit for the 15% tax bracket (married filing jointly).

3. You should make sure what you are selling is long term capital gains. Depending on the fees of your funds, it may be better to wait to sell a portion until next year, if the income from these sales will put you over 75k in total taxable income.

4. Unless you are already pushing 120k or more, or don't have a mortgage, I don't think you'll have a problem getting below 75k.

[jeromedawg]

1. If you are a single income household it is always better to file jointly, unless you are trying to keep assets separate. If you file jointly the upper limit of the 15% tax bracket is ~75k. It's only ~37.5k if you are filing separately. The former makes your idea much easier to execute.

Thanks! That's what I was thinking. At first I thought "head-of-household" might be better but not after looking at it. Seems a bit strange why it wouldn't be better but oh well...

2. Kinda. First, taxable income, not AGI, is the metric you should track. This is great, because Taxable Income is way easier to keep low than AGI. Not only will your 401k/HSA/IRA reduce it, but so will all of your deductions and credits. Mortgage interest, college expenses, moving expenses, child tax credit... All of these things will help keep your taxable income below the ~75k threshold that is the upper limit for the 15% tax bracket (married filing jointly).

I thought things like mortgage interest, charitable contributions, etc are what the AGI are composed of in addition to and *after* your taxable income (isn't this amount spelled out on the paycheck as "Federal Taxable Income" minus line items like 401k, HSA, FSA, health plans?) EDIT: nah just looked it up for mortgage and it's not - but I don't have a mortgage anyway so that's out of the question. So then where do charitable contributions fall then?

3. You should make sure what you are selling is long term capital gains. Depending on the fees of your funds, it may be better to wait to sell a portion until next year, if the income from these sales will put you over 75k in total taxable income.

Yeah, I'd definitely be offloading the long-term capital gains. So if I have a bunch of stocks and funds that I want to offload, I need to make sure that I only sell up to whatever amount doesn't put me *over* the $75k in addition to my taxable income at the time?

4. Unless you are already pushing 120k or more, or don't have a mortgage, I don't think you'll have a problem getting below 75k.

I'm anticipating being under 120k at that point in time and don't have a mortgage at least currently.

[MDM]

2. Kinda. First, taxable income, not AGI, is the metric you should track. This is great, because Taxable Income is way easier to keep low than AGI. Not only will your 401k/HSA/IRA reduce it, but so will all of your deductions and credits. Mortgage interest, college expenses, moving expenses, child tax credit... All of these things will help keep your taxable income below the ~75k threshold that is the upper limit for the 15% tax bracket (married filing jointly).

I thought things like mortgage interest, charitable contributions, etc are what the AGI are composed of in addition to and *after* your taxable income (isn't this amount spelled out on the paycheck as "Federal Taxable Income" minus line items like 401k, HSA, FSA, health plans?) EDIT: nah just looked it up for mortgage and it's not - but I don't have a mortgage anyway so that's out of the question. So then where do charitable contributions fall then?

Charitable contributions are itemizable deductions.  Your total for itemized deductions needs to be greater than the standard deduction to make the itemizable ones useful for tax reduction.  Becoming familiar with the actual form 1040 (not, e.g., the TurboTax Q&A format) can be helpful.

3. You should make sure what you are selling is long term capital gains. Depending on the fees of your funds, it may be better to wait to sell a portion until next year, if the income from these sales will put you over 75k in total taxable income.

Yeah, I'd definitely be offloading the long-term capital gains. So if I have a bunch of stocks and funds that I want to offload, I need to make sure that I only sell up to whatever amount doesn't put me *over* the $75k in addition to my taxable income at the time?

Check one or more of the following to evaluate some "what if?" options:
http://www.paycheckcity.com/calculator/salary/ or
http://www.bankrate.com/calculators/tax-planning/1040-form-tax-calculator.aspx or
https://turbotax.intuit.com/tax-tools/calculators/taxcaster/ or
the reader case study spreadsheet.