Can somebody explain dividends and taxes a bit please (IRA, fund, margin)
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they are taxed low but the effect the gains have on other income can be nasty .
as in example we had a large capital gain in 2014 . we got a 20% special capital gains rate , not 15% , since we were over the income limit , plus an almost 4% surcharge they have now on incomes over a certain level .
that capital gain took us off the regular tax system and put us on the amt system which taxed all other income at a flat rate that becomes an insane amount . .
that required us to pay a boat load of state and local taxes when we mailed in our taxes .
that big deduction on 2015 taxes for the state and local taxes paid in 2014 triggered the amt tax once again .
but that is not the end of it .
even though no one was using medicare yet they go by 2014 taxes to set your premium for 2016 . we got a 300 buck increase in premium just for my wife . had i been on it we would have gotten a 600 a month increase in premium all from that one capital gain in 2014
i am appealing the increase and finally have our case tomorrow .
so there you have the ramifications of a capital gain that typically gets taxed between zero and 20% .
Last edited by mathjak107; 04-14-2016 at 07:33 AM..
The beauty of doing taxes on your computer is that you can do "what-if?" calculations.
Take the dividends back out and print your 1040 and Sched D ( as mathjak said ).
Then put in $100 of dividends and print out the same. You might want to create a fake name and manually input the numbers minus your dividends to do this comparison.
Then put in the whole $1,600 and see what the printouts look like.
Take a highlighter and mark every number that changes. Look for penalties. Also ( as mathjak also said ), check to see that you didn't get kicked in to an AMT situation.
It is not that you are being taxed over 50% on the dividends, you are being taxed more on something else maybe because of the dividends or something you didn't notice. For instance, you imported a bunch of stuff from four mutual funds. There might have been other taxable items that you didn't notice.
Also, there is no guarantee that your software imported your brokerage statements correctly.
Finally, doing your taxes on April 14th is too late. Just file an extension, send in a check to cover the amount and then you have six more months to figure this out. If you are not up to this, CPA firms are busy year-round because many if not most high income taxpayers file extensions. .... So do procrastinators like you.
Buffett has considerable wealth from Berkshire Hathaway, but his income is not all that high because Berkshire does not pay a dividend. All of his wealth is in unrealized capital gains, which of course are not taxed until they are realized. I believe he stated recently his income was around $40M, which is high but certainly not in the billions. He paid a tax of about $7M on that income for an effective tax of 18%, but his bracket is no doubt 39%. Buffett is a prodigious philanthropist, so I am sure his tax bill was considerably reduced by his charitable contributions.
If Buffett ever converts those unrealized cap gains into actual gains, he will pay tax, but still it will be no more than 20%. I like Buffett because he gives a lot of his wealth to good causes but there are many other wealthy cats who don't.
if you have income high enough it is actually 24% for capital gains today . 20% plus a 3.80% surcharge for medicare . odds are the amt gets tripped too with big gains so like what happened to us , taxes are well up there from those kind of capital gains levels
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