According to tables I have seen, if I have "income" of more than $415,050 than I pay a 20% federal capital gains tax on any capital gains I have that year.
Does this "income" figure itself include the capital gains or only ordinary income?
For example, if I have an income of $100,000 from my job and I also realize a $350,000 in long-term capital gains from a stock sale, will I pay 20% on the $350K or 15%?
For example, if I have an income of $100,000 from my job and I also realize a $350,000 in long-term capital gains from a stock sale, will I pay 20% on the $350K or 15%?
You'll pay 20% assuming filing single and no major offsets to taxable income.
Capital gains count towards your income for determining tax bracket. They're on line 13 of the 1040 which is in the "income" section and aren't adjusted out/excluded from your taxable income, but since they are taxed at a different rate make sure to follow the instructions for line 44 when calculating your tax due.
The $100,000 is taxed separately as "ordinary income". The $350,000 is taxed at long-term capital gains of 15%. Capital gains is not taxed at 20% until $415,050. Even though $100,000 + 350,000 = $450,000, only $350,000 can be taxed at capital gains. The total ordinary income tax burden will be $31,986 if single, in California.
Caveat: By creating a holdings corporation (C-corp), you can section 351 that $100,000 into the C-corp for tax deferment, which won't be taxed until you take money from the corporation.
Since you will hold 100% of the voting stock, all distributions will be considered pro rata. Additionally, you can issue yourself a dividend under the rules of 26 USC §§243-246 (a greather-than-80% shareholder who receives a dividend can write-off 100% of said dividend). As long as that dividend doesn't trigger §§1.243-246 of The Regulations by keeping the distribution just under 10% of E&P i.e. $10,000. Wages are deductible against basis so pay yourself $35,000 and keep $55,000 in the corporation and you can decrease the total liabilities down to $22,000 from $31,000, which includes the CA franchise tax.
You don't have to pay yourself any money out a corporation to use the money.
