← FarmCPA Home

Help! What Is My Capital Gains Tax Rate?!

By: | Trackback URL | 3 Comments

January 2nd, 2013

We are continuing to digest the new tax bill (assuming President Obama signs it today).  One of the unique features in this tax bill is, that for many taxpayers, they will not accurately know their capital gains (or qualified dividends) tax rate until they prepare their tax return.

In brief, we know the following for the 2013 tax year:

  • For many lower income and middle income taxpayers who are in the 15% or lower tax bracket, their capital gains will be taxed at zero.
  • For most middle income taxpayers their capital gains tax rate will be a maximum of 15% (probably income in the range of $90,000 to $200/$250,000).
  • For some middle income taxpayers whose adjusted gross income (not taxable income) exceeds $200/$250,000, their capital gains tax rate will be 18.8%. which is the 15% capital gains rate plus the 3.8% Medicare surtax rate on investment income including capital gains.
  • For some of these same middle income taxpayers who have major itemized deductions, each dollar of additional capital gains will wipe out part of their itemized deductions.  This will increase their capital gains rate to about 20%.
  • For those taxpayers who are now in the highest marginal tax rate of 39.6% ($400/$450,000 of taxable income) with limited itemized deduction, their capital gains rate will be 23.8%, the maximum capital gains tax rate of 20% plus the Medicare surtax rate of 3.8%.
  • Finally, those taxpayers in the highest tax bracket with itemized deductions, their maximum capital gains (and qualified dividend) rate will be about 25%.   This is equal to the maximum capital gains rate of 20%, plus the Medicare surtax rate of 3.8% plus about 1.2% for the phase-out of their itemized deductions.

Therefore, any taxpayer can be subject to six different capital gains tax rates depending on their overall combination of adjusted gross income and taxable income.  Income tax rates are normally applied to taxable income, however, the Medicare surtax is based upon adjusted gross income.  This is why, in many cases, we will not know your actual capital gains tax rate until we prepare the tax return.

Just think if you had to prepare a tax return by hand and you made a change in your income.  You could spend a lot time just trying to calculate your capital gains tax, let alone your other taxes.

Paul Neiffer, CPA

 

Paul Neiffer

Paul Neiffer is a certified public accountant and business advisor specializing in income taxation, accounting services, and succession planning for farmers and agribusiness processors. Paul is a partner with CliftonLarsonAllen in Yakima, Washington, as well as a regular speaker at national conferences and contributor at agweb.com. Raised on a farm in central Washington, he has been immersed in the ag industry his entire life, including the last 30 years professionally. In fact, Paul drives combine each summer for his cousins and that is what he considers a vacation. Leave a comment for Paul. If you would like to leave a comment for Paul, follow the link above, however, please make sure to include your email address so that he can reply to your comment (your email address will not automatically show up).

More Posts - Website

Follow Me:
Twitter

← FarmCPA Home

3 Comments

Leave a Reply

Your email address will not be published. Required fields are marked *

You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

Subscribe to this blog by:

Previous Posts

Events

View upcoming speaking engagements and other networking events for Paul Neiffer and CliftonLarsonAllen’s agribusiness team.

See All

  • Twitter Feed

    I hope KC does not waste all their hits tonight 2 days ago

    Nothing better (for a farm boy) pic.twitter.com/DUShoT5cpF

    6 days ago

    If you have higher yields or go all corn for the 2014 crop year consider ARC-IC. It may more than offset base acre penalty 1 week ago

    Presenting two farm bill seminars today. Dayton and Walla Walla 1 week ago

    Netflix down $110 in after hours trading. Sign of momentum stocks going flat? 2 weeks ago

    Getting ready to go to LA to defend my son and I APU Alumni golf tournament victory last year. I may have to carry him again 2 weeks ago

    Everybody worried about bubble in land market. They should worry about stock market bubble 2 weeks ago

    77 degrees on October 8. Perfect. 3 weeks ago

    Somehow IRS listed several counties in Iowa as drought stricken. Hard to believe after all the rain this year 4 weeks ago