Using the 0% tax rate- Batley CPA
By: Batley CPA
To maximize use of the 0% rate, your taxable income (after all deductions) in 2019 must be no more than $39,375 for single filers and married individuals filing separately, $52,750 for heads of household, or $78,750 on a joint tax return. (Inflation adjustments may increase those numbers in the future.)
Can you use a 0% tax rate?
Example: Ryan and Ellie Ford have income over $100,000 on their 2018 tax return, reporting $60,000 of taxable income. (That's after taking the standard deduction and deducting pre-tax contributions to retirement plans.) The Fords expect to have similar income in 2019.
Suppose Ryan and Ellie sell $50,000 of shares in a U.S. stock fund, which they had bought several years ago for $35,000, generating a $15,000 long-term capital gain in a taxable account.
Assuming the Fords will have no other capital gains or losses in 2019, this gain is expected to bring their taxable income for the year from $60,000 up to $75,000. In this scenario, the Fords will owe 0% income tax on their $15,000 long-term capital gain because their taxable income would be under the $78,750 threshold.
Income from stock dividends may be taxed at ordinary income tax rates of up to 37% this year. However, on some dividends, taxpayers may owe 0%. The cut-off points are the same as they are for 0% long-term capital gains: taxable income under $39,375 for single filers, for example, and $78,750 on a joint tax return.
Most dividends, including dividends passed through from stock funds, are qualified dividends that receive favorable tax treatment, although some conditions apply. Qualified dividends are taxed at the same rates as long-term capital gains, so if your income is too high for the 0% rate, you'll owe tax at 15% or 20%
About Batley CPA
Batley CPA, LLC is a full-service CPA firm providing tax, accounting, payroll and advisory services to businesses and individuals throughout Green Bay and the Fox Cities. Batley CPA regularly provides clients with best practices and strategies to maximize cash flow, profit, reduce taxes, manage costs and risk, and bring meaning to financial and operational data. The company has offices in Appleton, Neenah and Green Bay.
Batley CPA is available to answer any questions you may have about the 0% tax rate.
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