Assume my taxable income is within the 25% bracket, and my mutual funds have capital gains that year. Additionally, my being in the 25% bracket occurs before the capital gains are accounted for. It is my understanding that I would have to pay 15% taxes on those gains; whereas, if I were in the 15% bracket, I would pay no taxes on those gains.
Is it correct that the border between the 15% and 25% bracket triggers such a discontinuous change? By comparison, the ordinary income tax bracket rates are at least continuous, despite not being smooth.
If so, could I contribute more towards a traditional IRA and traditional 401(k) to return to the 15% bracket and pay no capital gains taxes, provided the contribution limits are not exceeded?