It's easy. Your tax bracket is the tax rate that would apply to the next dollar you earn. If you have already done your tax return this year, find the amount on line 41.
Next go to Publication 17, and find the tax rate schedule on page 275. Using the schedule that applies to your filing status, use the amount from your 1040 (line 41), to see what percentage tax is applied if your income is one dollar greater.
That percentage is your marginal tax rate, or, your tax bracket.
[ Edited by DaveT on Date 04/07/2003 ]
Quote:
On 2003-04-03 18:02, MisterPags wrote:
Thanks DaveT. So, say I make $5000 on an assignment of contract. The tax I will have to pay on $5000 is where I find myself on the marginal tax rate?
- Jason
But remember your tax bracket will depend on whether your profit is either (i) short term capital gains, (ii) ordinary income, or (ii) long term capital gains.
The method DaveT describes will work for (i) and (ii). To find out your longterm capital gains tax bracket, find your tax bracket from (i) and (ii) and if they are lower higher than 15%, your long-term capital gains bracket will be 20% (and 18% if you purchased the property after January 1, 2002 and held the property for 5 years). If your tax bracket from (i) and (ii) are 15% or lower, your long term capital gains tax bracket will be 10% (or 8% if you purchased the property after Jan 1, 2002 and held the property for at least 5 years).
Just to clarify what Taxjunkie said, here's the bottom line -- your capital gains tax rate is determined by your tax bracket as follows:
If you're in the 15% income tax bracket: Capital Gains on assets held for a year or less are taxed at your ordinary income tax rate (in this case 15%).
Capital Gains on assets held for more than a year, but less than five years, are taxed at a reduced rate of 10%.
Capital Gains on assets held for more than five years are taxed at a reduced rate of 8%.
If your ordinary income tax bracket is greater than 15%: Capital Gains on assets held for a year or less are taxed at your ordinary income tax rate (anywhere from 27% to 38.6%).
Capital Gains on assets held for more than a year are taxed at a reduced tax rate of 20%.
Capital Gains on assets held for more than five years are taxed at a reduced rate of 18%, but only if the assets were purchased on or after January 1, 2001. Assets purchased before January 1, 2001 that fall into this holding-period range are still taxed at the 20% long-term rate.
[ Edited by DaveT on Date 04/07/2003 ]
8th April, 2003
DaveT:
Thanks for pointing out my error ... your right, it is January 1, 2001 (not 2002). I was a little to quick on the typing!
Ok, this is a follow up...I got my 2002 Tax Return today and found the amount on line 41 and looked at the tax table number (which was the same number on line 42). So how do you get a percentage from line 41? I don't see where the conversion to percentages takes place.
If you look at Publication 17, page 275, you will find the tax rate schedules. Find the schedule for your filing status, then figure out what percentage is applied to the next dollar you earn. You are looking in the "Tax Tables" rather than the Tax Rate Schedules.
MisterPags,
It's easy. Your tax bracket is the tax rate that would apply to the next dollar you earn. If you have already done your tax return this year, find the amount on line 41.
Next go to Publication 17, and find the tax rate schedule on page 275. Using the schedule that applies to your filing status, use the amount from your 1040 (line 41), to see what percentage tax is applied if your income is one dollar greater.
That percentage is your marginal tax rate, or, your tax bracket.
[ Edited by DaveT on Date 04/07/2003 ]
Thanks DaveT. So, say I make $5000 on an assignment of contract. The tax I will have to pay on $5000 is where I find myself on the marginal tax rate?
- Jason
Exactly.
Quote:
On 2003-04-03 18:02, MisterPags wrote:
Thanks DaveT. So, say I make $5000 on an assignment of contract. The tax I will have to pay on $5000 is where I find myself on the marginal tax rate?
- Jason
But remember your tax bracket will depend on whether your profit is either (i) short term capital gains, (ii) ordinary income, or (ii) long term capital gains.
The method DaveT describes will work for (i) and (ii). To find out your longterm capital gains tax bracket, find your tax bracket from (i) and (ii) and if they are lower higher than 15%, your long-term capital gains bracket will be 20% (and 18% if you purchased the property after January 1, 2002 and held the property for 5 years). If your tax bracket from (i) and (ii) are 15% or lower, your long term capital gains tax bracket will be 10% (or 8% if you purchased the property after Jan 1, 2002 and held the property for at least 5 years).
Taxjunkie
Just to clarify what Taxjunkie said, here's the bottom line -- your capital gains tax rate is determined by your tax bracket as follows:
If you're in the 15% income tax bracket:
Capital Gains on assets held for a year or less are taxed at your ordinary income tax rate (in this case 15%).
Capital Gains on assets held for more than a year, but less than five years, are taxed at a reduced rate of 10%.
Capital Gains on assets held for more than five years are taxed at a reduced rate of 8%.
If your ordinary income tax bracket is greater than 15%:
Capital Gains on assets held for a year or less are taxed at your ordinary income tax rate (anywhere from 27% to 38.6%).
Capital Gains on assets held for more than a year are taxed at a reduced tax rate of 20%.
Capital Gains on assets held for more than five years are taxed at a reduced rate of 18%, but only if the assets were purchased on or after January 1, 2001. Assets purchased before January 1, 2001 that fall into this holding-period range are still taxed at the 20% long-term rate.
[ Edited by DaveT on Date 04/07/2003 ]
DaveT:
Thanks for pointing out my error ... your right, it is January 1, 2001 (not 2002). I was a little to quick on the typing!
Taxjunkie
Taxjunkie,
Thanks for the time and effort you put into contributing to this Forum as well as the Legal Forum.
Your presence here only stengthens this site.
Thank you.
Dave T
Ok, this is a follow up...I got my 2002 Tax Return today and found the amount on line 41 and looked at the tax table number (which was the same number on line 42). So how do you get a percentage from line 41? I don't see where the conversion to percentages takes place.
Jason
MisterPags(Jason),
If you look at Publication 17, page 275, you will find the tax rate schedules. Find the schedule for your filing status, then figure out what percentage is applied to the next dollar you earn. You are looking in the "Tax Tables" rather than the Tax Rate Schedules.