Take the 2-minute tour ×
Personal Finance & Money Stack Exchange is a question and answer site for people who want to be financially literate. It's 100% free, no registration required.

I am marginally in a lower tax bracket based on W2 income. If I add capital gains from stock sales, then this tax bracket would go higher. Does capital gains actually affect your tax bracket or are they just taxed separately (based on long-term vs short-term gains/losses) ?

share|improve this question
add comment

2 Answers

up vote 15 down vote accepted

I think you're misunderstanding how tax brackets work. If you make $1 more and that bumps you into a higher bracket, only THAT particular dollar will be taxed at the higher tax bracket rate... Not your entire income.

Short term capital gains are treated as income. Long term capital gains have a special tax rate currently.

share|improve this answer
    
That's an important distinction regarding how tax brackets work. I was not fully aware of that. How tax brackets work –  Tim Feb 7 '11 at 3:03
add comment

I'm not sure where you are, but in the United States capital gains are taxed at a lower rate than other types of income.

On the 1040, captial gains income is separated from earned income, and income tax is calculated just on earned income. Then capital gains tax is calculated on capital gains income, and then added to income tax afterward.

share|improve this answer
add comment

Your Answer

 
discard

By posting your answer, you agree to the privacy policy and terms of service.

Not the answer you're looking for? Browse other questions tagged or ask your own question.