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Should I be considering income bracket when establishing how much I owe for taxes when selling stocks?

Personal Finance & Money Asked on June 20, 2021

Bought some TSLA back in 2015 – 600 shares. I made more than ten times the amount of money. I usually am a believer in holding stuff hence most of my investments are in a roth ira, a 401k and a rollover so I rarely sell stocks.

What percentage needs to go to the irs when I sell this stock? Is keeping aside at least 20-25% strictly to pay for taxes a suitable amount?

I’ve read some sites say 10, 15, or 20%. Maybe they are basing this on my income. For what its worth I make below 200k yearly. The stock is from a brokerage account through Fidelity.

One Answer

Yes, your regular tax bracket will affect how much capital gains tax you owe.

It depends on the exact size of your capital gain (rough calculation says about $400k) and the amount of your other income. But the long-term capitals gains tax brackets are 0%, 15%, and 20%. There is also an additional 3.8% Net Investment Income Tax (NIIT) that applies to investment income above $200k ($250k for married filing jointly), so effectively the brackets are 0%, 15%, 18.8%, and 23.8%. You are almost certainly above the 0% bracket due to your regular income. Some of your gain will probably fall into each of the 3 higher brackets. If you keep 20% of the gain for taxes, that should cover your federal liability; 25% if you want to be sure you save more than you need to. However, don't forget state income taxes--most states tax capital gains like regular income.

For 2021, assuming married filing jointly with no dependents and an AGI (before capital gain) of $175k and the standard deduction ($25,100), you have a taxable income of $149,900. This gives a federal tax of $24,475. Adding a $400k long-term capital gain, you add $62,415 of capital gains tax, plus another $12,350 in NIIT, for a total of $99,240 in federal tax. The excess $74,765 from the capital gain comes out to 18.7% of the capital gain.

Correct answer by Craig W on June 20, 2021

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