Latest / Money In Motion with Klaas Financial / Capital Gains & Tax Brackets

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Capital Gains & Tax Brackets · Money In Motion with Klaas Financial

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Speaker 1: on the air six so eight three two one thirteen ten.
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Speaker 1: That's six so eight three two one thirteen ten. We'll
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Speaker 1: get you on the other the retirement planning professionals from
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Speaker 1: COSS Financial, of course, you can always call their off is.
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Speaker 1: Make an appointment at Coss Financial. It's complementary six oh
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Speaker 1: eight four four two five six three seven Again no
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Speaker 1: charge for the financial get to know you appointment at
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Speaker 1: Costs Financial. It will be complementary to you. Again their
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Speaker 1: number six O eight four four two five six three seven.
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Speaker 1: Are gonna be talking about taxes and not all taxes
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Speaker 1: are the telling something A lot of folks are. Of course,
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Speaker 1: that's true. Not all taxes are the same. We're going
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Speaker 1: to get some details in joining us this morning from
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Speaker 1: Class Financial, CJ Closs and Jenny Dody and CJ. Welcome
1:07
Speaker 1: to the show. Good to hear from you.
1:08
Speaker 2: How you been I having good? Sean? How about you?
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Speaker 1: I'm doing really good. Jenny, Welcome to the program. This
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Speaker 1: is your first show, isn't it?
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Speaker 3: Yes?
1:16
Speaker 2: It is. Hi.
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Speaker 3: Thank you for having me.
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Speaker 1: It's great to have you and great to have you
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Speaker 1: along for the show. And as mentioned, we've got a
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Speaker 1: fantastic program ahead. A couple of things to keep in
1:25
Speaker 1: mind as we do the show. Don't forget love phone calls,
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Speaker 1: love questions, if you got anything retirement related. Love to
1:30
Speaker 1: have you join us this morning six so eight, three, two, one,
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Speaker 1: thirteen ten. Don't forget as well the class quiz question
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Speaker 1: link will be doing one of those again this morning.
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Speaker 1: Your chance to win a fantastic prize this week, our
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Speaker 1: friends from Class Financial have provided a twenty five dollars
1:42
Speaker 1: gift card to Jersey. Mike's tell you a little bit
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Speaker 1: later on the program how you can win that gift card.
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Speaker 1: Little tip though, if you pay close attention, oftentimes both
1:49
Speaker 1: the question and answer to the class quiz question we
1:52
Speaker 1: come up during the program, and before we get to
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Speaker 1: this week's topic, let's actually take a look back last
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Speaker 1: week CJ to our show and get the question and
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Speaker 1: answer there to the class quiz question of the week.
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Speaker 2: Yeah, thanks everyone for listening as you do each and
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Speaker 2: every week, and congratulations to our winner from last week,
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Speaker 2: who was Paul of Monona. And Paul accurately answered this
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Speaker 2: truer false question from last week, which was contributions to
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Speaker 2: a health savings account are considered triple tax advantage savings vehicles.
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Speaker 2: It was a true or false question, and Paul accurately
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Speaker 2: answered that as true. HSA's for short health savings accounts
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Speaker 2: are actually triple tax advantage savings vehicles, one of the
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Speaker 2: most tax advantage account types in the IRS code. So
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Speaker 2: great job, Paul, and I would just encourage everybody listening
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Speaker 2: closely this week because we'll do another one at the
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Speaker 2: end of the show.
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Speaker 1: Should be a should be a great program ahead, and
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Speaker 1: don't forget that last show that we did. If you
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Speaker 1: missed any part of it you want to listen back,
2:49
Speaker 1: you can definitely head on over to classfinancial dot com.
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Speaker 1: That's Closs klaasfinanci dot com. You listen back to the
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Speaker 1: previous shows podcast. You can also subscribe there as well,
2:59
Speaker 1: right at class financial dot com. So today's show, we're
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Speaker 1: going to be talking about things for listeners when it
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Speaker 1: comes to different taxes that apply to different types of earnings. Jenny,
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Speaker 1: what do folks need to know here?
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Speaker 2: Yeah?
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Speaker 3: Thanks, Sean. Yeah, today we're gonna we intend to help
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Speaker 3: our listeners understand the difference between income taxes and cattle
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Speaker 3: gains taxes in the US tax Code. However, before we
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Speaker 3: summarize those differences, we need to provide everyone with a
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Speaker 3: fifty thousand foot view of this topic so we can
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Speaker 3: better understand what we're talking about as we get further
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Speaker 3: into this show and the US tax Code. The term
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Speaker 3: an earnings is generally understood to fall under the broader
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Speaker 3: concept of gross income. Now, the Internal Revenue Code, Section
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Speaker 3: sixty one defines gross income as all income from whatever
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Speaker 3: source derived. So this is a very broad and comprehensive definition,
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Speaker 3: and it includes, but isn't limited to, the following list
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Speaker 3: of items. First, compensation for services. This is what most
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Speaker 3: people think of as earning. It includes wages, salaries, tips, commissions, fees, bonuses,
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Speaker 3: and other taxable employee pay. It also includes income from
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Speaker 3: self employment, such as that earned by freelancers, independent contractors,
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Speaker 3: or small business owners, and this category even includes bartering. Second,
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Speaker 3: we have income from a business. This is the income
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Speaker 3: generated from operating a business minus the cost of goods
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Speaker 3: sold or said another way. Attractions against business income are
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Speaker 3: called deductions and taken for expenses that are ordinarily and
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Speaker 3: necessarily paid in the course of business. Next, gains from
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Speaker 3: dealings and property, also known as capital gains. This category
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Speaker 3: includes profits from selling property such as stocks, bonds, or
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Speaker 3: real estates. Then we have interest and dividends. Most people
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Speaker 3: are familiar with the fact that income received from investments
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Speaker 3: and bank accounts is taxable rents and royalties. This means
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Speaker 3: grows income from renting out property or from the use
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Speaker 3: of a copyright our patent, which is taxable. Again, deductions
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Speaker 3: come into play here. Pensions and annuities are taxable, and
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Speaker 3: distributions from retirement accounts are also taxable, such as pre
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Speaker 3: tax iras or flour one k's that were not previously
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Speaker 3: taxed forgiven debt is usually considered taxable income. This can
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Speaker 3: be a surprise for people The tax jargon for this
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Speaker 3: category is income from discharge of indebtedness. Lastly, we have
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Speaker 3: distributive shares of partnership, gross income passed through, income from
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Speaker 3: s corporations, and income from an interest and in a
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Speaker 3: state or trust, which are all taxable. I hope you
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Speaker 3: can appreciate that there are so many types of income
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Speaker 3: and generally speaking, all income is taxable unless specifically excluded
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Speaker 3: from tax by law.
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Speaker 1: That is amazing. As we talked this morning with Jenny
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Speaker 1: Doity and CJ Closs of cost Financial, don't forget. You
5:57
Speaker 1: can learn more online Cossfinancial dot com. That's class k
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Speaker 1: l Aasfinancial dot com. Their telephone number six soh eight
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Speaker 1: four four to two five six three seven no charge
6:08
Speaker 1: for that initial gets to know you appointment dech claws Financial.
6:10
Speaker 1: It will be complimentary to you. CJ. Let's pull you
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Speaker 1: in on this part of the conversation. Fantastic overview there
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Speaker 1: from Jenny. Let's talk then about how this all then
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Speaker 1: applies to different types of earnings.
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Speaker 2: Yeah, good point, Sean. So before I do that, I
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Speaker 2: do just want to let our listeners know because you
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Speaker 2: might be going Jenny doty, this is a new voice.
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Speaker 2: So many of you know, about a year ago we
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Speaker 2: decided to bring tax preparation and some tax planning services
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Speaker 2: in house, and Jenny is are higher. That is a
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Speaker 2: culmination of that dream becoming a reality. So Jenny actually
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Speaker 2: does tax prep. She's in enrolled agents with the IRS,
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Speaker 2: and so she does tax prep services for our clients.
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Speaker 2: Now that's not a requirement. Our clients don't have to
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Speaker 2: work with her, but it's certainly nice when the right
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Speaker 2: hand knows what the left hand is doing, so to speak. So, yeah,
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Speaker 2: Jenny just gave us a really good rundown there of
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Speaker 2: kind of high level what are these different income categories?
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Speaker 2: And while certainly it's important to understand the broader concept
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Speaker 2: of earnings and gross incomes, that's not the main point
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Speaker 2: of our show today. The truth is that our US
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Speaker 2: tax code is unbelievably complex and there's a lot more
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Speaker 2: to understand than just gross income. But we don't have
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Speaker 2: time for everything today. Instead, we want to focus on
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Speaker 2: something that a lot of Americans don't realize or understand,
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Speaker 2: such as did you know that there are two different
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Speaker 2: primary brackets that could apply to your taxable income based
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Speaker 2: upon the type of earnings you receive in a year. Yes,
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Speaker 2: there are two different brackets. Most people have heard of
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Speaker 2: this kind of like, oh, I've heard that the US
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Speaker 2: tax code is a progressive tax code. The more income
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Speaker 2: you have, the more that you pay in taxes, YadA, YadA, YadA.
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Speaker 2: A lot of people don't know how that calculation works,
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Speaker 2: but they get the idea. What we're here to say
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Speaker 2: today is like, but did you know there's two of them,
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Speaker 2: two different brackets. So the two different brackets are ordinary
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Speaker 2: income tax brackets and long term capital gains tax brackets.
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Speaker 2: So let's dig into each of these a little bit.
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Speaker 2: Ordinary income tax brackets. This is the most common type
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Speaker 2: of tax bracket and applies to the majority of a
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Speaker 2: person's earnings. This includes so remember what Jenny was talking about.
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Speaker 2: So these items I'm about to tell you are the
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Speaker 2: ones that fall into the ordinary income tax brackets. It
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Speaker 2: would be wages, salaries and tips, interests from a savan's
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Speaker 2: account form like on Form ten ninety nine I in
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Speaker 2: short term capital gains from assets held less than one year,
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Speaker 2: business income from self employment or sold proprietorship, rental income
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Speaker 2: for most types of rentals, pensions, and retirement account distributions.
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Speaker 2: There are seven different tax rates So think about it
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Speaker 2: this way. Those categories I just told you all fall
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Speaker 2: into the quote unquote ordinary income tax bracket. Okay, what
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Speaker 2: is said ordinary income tax bracket? Well, there are seven
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Speaker 2: different tax rates for ordinary income, which are progressive. This
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Speaker 2: means that as your income increases, it is tax at
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Speaker 2: a higher rate. However, all income first fills the lowest bracket,
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Speaker 2: So even if your income is high, there will be
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Speaker 2: portions of that income that are taxed at the lowest rates.
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Speaker 2: How much will be taxed at the lower rates is
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Speaker 2: a byproduct of how much of each bucket you fill
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Speaker 2: up or bracket that you fill up, and the capacity
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Speaker 2: or size of each of the brackets is specified in
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Speaker 2: the tax rules set by Congress. Additionally, the specific income
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Speaker 2: thresholds for each bracket depends on your filing status, whether
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Speaker 2: you're single, married, filing jointly, head of households, so on,
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Speaker 2: and so forth. For example, for the tax here twenty
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Speaker 2: twenty five, the rates those seven different rates we were
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Speaker 2: talking about are ten percent, twelve percent, twenty two percent,
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Speaker 2: twenty four, thirty two, thirty five, and thirty seven. Each
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Speaker 2: of those tax it's then has a specified bracket or
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Speaker 2: range of income amounts that corresponds to it. So now
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Speaker 2: again the reason we didn't want to get into each
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Speaker 2: kind of range is because there's different ranges depending upon
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Speaker 2: your filing status. So it just gets really really complex.
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Speaker 2: I don't want you to worry about that for now,
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Speaker 2: and I want you to focus on as Okay, there's
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Speaker 2: large portions of my income that fall into these ordinary brackets,
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Speaker 2: and those ordinary brackets are progressive and have ten and
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Speaker 2: have seven different categories of rates, and each bucket has
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Speaker 2: to be filled up till you get to the next
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Speaker 2: buck So there you go. There's the ordinary income tax
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Speaker 2: side of the equation.
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Speaker 1: Talking this morning with CJ. Closs and Jenny Doughty. They
10:45
Speaker 1: are our retirement planning professionals from Class Financial Online, Class
10:49
Speaker 1: Financial dot Com. That's Class K L A A S
10:51
Speaker 1: Financial dot Com DOEVI at number six so eight four
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Speaker 1: four two five six three seven. So, CJ, we talked
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Speaker 1: about the ordinary income tax brackets. What about those capital
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Speaker 1: gains tax brackets?
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Speaker 2: Yeah, so this is the piece that most people are
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Speaker 2: somewhat unaware of. So as we discuss, gains from dealings
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Speaker 2: and property are considered capital gains. The tax rates for
11:13
Speaker 2: these gains are different depending on depending upon whether they're
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Speaker 2: considered short term or long term. So short term capital
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Speaker 2: gains these are taxed at your ordinary income tax rates.
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Speaker 2: We mentioned it before. Short term capital gains fall into
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Speaker 2: the ordinary income tax bracket, just like the majority of
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Speaker 2: your other income. So think of it if you if
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Speaker 2: you buy a stock and then you sell it eleven
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Speaker 2: months later for a gain, the profit is subject to
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Speaker 2: the ordinary income tax brackets. Well, what about long term
11:41
Speaker 2: capital gains? So again again, same example, I buy a
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Speaker 2: stock and then I sell it thirteen months later, and
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Speaker 2: there's a gain in that sale. This is where you
11:50
Speaker 2: get a separate set of brackets and preferential tax rates.
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Speaker 2: So long term capital gains are gains from selling assets
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Speaker 2: you've held for more than one year. That's the key here.
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Speaker 2: Qualified dividends are a specific type of dividend payment from
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Speaker 2: certain domestic and foreign corporations. These are often tax at
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Speaker 2: those same preferential lower rates as well. Okay, so now
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Speaker 2: that we've talked about okay, so what falls into these
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Speaker 2: capital gains tax brackets. It's kind of this long term
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Speaker 2: capital gains more than twelve months, and then secondarily these
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Speaker 2: qualified dividends. There are currently three different tax rates for
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Speaker 2: long term capital gains and qualified dividends. Okay, so those
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Speaker 2: three different rates are zero, fifteen, and twenty, So everybody
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Speaker 2: should be thinking, like, wait a minute, ordinary income had
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Speaker 2: seven different rates that topped out at like thirty seven percent.
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Speaker 2: You're saying that this type of income, capital gains and
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Speaker 2: qualified dividends are zero, fifteen, and twenty. That's right, Everybody
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Speaker 2: pay close attention here. The income thresholds for these rates
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Speaker 2: are also based on your filing status and are separate
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Speaker 2: from the ordinary income tax brackets. For example, a single
13:01
Speaker 2: filer might have a zero percent capital gains rate on
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Speaker 2: a certain amount of income, a fifteen percent rate on
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Speaker 2: the next portion, and a twenty percent rate on the
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Speaker 2: higher portion. It's also important to mention here that a
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Speaker 2: gain is a calculated amount. It rarely equals the sale
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Speaker 2: price of an asset. So just remember, if I sell
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Speaker 2: a stock for one hundred thousand dollars, that's not my gain.
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Speaker 2: It's the gain from the difference of what I bought
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Speaker 2: it at and what I sold it at, assuming I
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Speaker 2: held it for more than twelve months. So this is
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Speaker 2: kind of setting the stage. Jenny's going to dig in
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Speaker 2: here in a moment but we're setting the stage for Okay,
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Speaker 2: two different, very different brackets here, and the capital gains
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Speaker 2: tax bracket and the qualified divinence bracket is significantly more
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Speaker 2: tax preferred. So Jenny in a moment here's going to
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Speaker 2: dig into how does all of that work and get
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Speaker 2: calculated together on your tax return.
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Speaker 1: Really interesting stuff and we're going to get into that
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Speaker 1: in just a moment with Jenny Doty and of course CJ.
13:57
Speaker 1: Closs our retirement planning professionals from class financial website, Coss
14:00
Speaker 1: financial dot com. That's Coss k l a A s
14:03
Speaker 1: financial dot com. Great resource. Learn more about Cossfinancial. They're
14:07
Speaker 1: telephone number six oh eight four four two five six
14:10
Speaker 1: three seven. No charge for that initial get to know
14:12
Speaker 1: you appointment at Loss Financial. It will be complementary to you.
14:15
Speaker 1: More of money in Motion with Coss Financial. It comes
14:17
Speaker 1: your way next right here on thirteen ten. Wu ib
14:20
Speaker 1: A getting a breakdown this week of the difference when
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Speaker 1: it comes to earnings, things like income taxes and capital
14:25
Speaker 1: gains taxes. Great program. If you missed any part of
14:28
Speaker 1: that first segment, or you want to listen back or
14:30
Speaker 1: share the program, of course, get head on over to
14:32
Speaker 1: Cossfinancial dot com. That's Coss k l A A S
14:36
Speaker 1: Financial dot com. They're telephone number six oh eight four
14:39
Speaker 1: four two five six three seven. No charge for that
14:42
Speaker 1: initial gets to know your appointment at COSS Financial. It
14:44
Speaker 1: will be complementary to you again their number six O
14:46
Speaker 1: eight four four two five six three seven. Talking this
14:49
Speaker 1: morning with CJ Closs and Jenny Dody and Jenny is
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Speaker 1: as CJ was talking earlier, just a little bit about
14:55
Speaker 1: some of the different brackets and other things, can you
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Speaker 1: kind of explain how income stack works when it comes
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Speaker 1: to ordinary income and then capital gains income as well.
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Speaker 3: Yes, certainly, income stacking is a critical concept to review
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Speaker 3: when it comes to understanding the brackets and the rates
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Speaker 3: that will apply to each type of income. First, it's
15:16
Speaker 3: important to convey that while there are separate tax brackets
15:19
Speaker 3: for capital gains, capital gains are not taxed in isolation
15:24
Speaker 3: of all the other types of income that may be
15:26
Speaker 3: in your tax return. All the types and quantities of
15:29
Speaker 3: income are aggregated into one large category in order to
15:33
Speaker 3: determine the extent or the totality of your taxable income.
15:38
Speaker 3: Note that I'd say taxable here. There are several measures
15:41
Speaker 3: of income on your tax return. Once we drill through
15:45
Speaker 3: most of them the ones we mentioned at the start
15:47
Speaker 3: of the show, and potentially apply many deductions along the way,
15:52
Speaker 3: we arrive at a specific measure of income called taxable income.
15:57
Speaker 3: So we can think of income stacking visual First, we
16:01
Speaker 3: stack vertically all the sources and quantities of income that
16:05
Speaker 3: will be taxed at ordinary income tax rates. Next, on
16:09
Speaker 3: top of that, we stack all the income that qualifies
16:12
Speaker 3: for those preferential capital gains rates. So here's a quick
16:16
Speaker 3: explanation of how that works. In a little bit more detail,
16:20
Speaker 3: your ordinary income can be thought of as the base
16:23
Speaker 3: layer of your stack. This includes your wages, salaries, tips,
16:28
Speaker 3: business income, and short term capital gains. This income is
16:32
Speaker 3: always taxed first using the progressive ordinary income tax brackets
16:36
Speaker 3: with the seven different rates that we mentioned ten, twelve, twenty,
16:39
Speaker 3: two percent, and so on. Next, after your ordinary income
16:44
Speaker 3: fills up the tax brackets, your long term capital gains
16:48
Speaker 3: and qualified dividends are stacked on top. We could say
16:51
Speaker 3: is to continue to continue to think visually about taxable income.
16:56
Speaker 3: As we've mentioned already, long term capital gains and qualified
16:59
Speaker 3: divists dividend income are subject to their own separate tax brackets.
17:03
Speaker 3: The zero, fifteen, and twenty percent we mentioned our earlier,
17:07
Speaker 3: But the starting point, so to speak, for your capital
17:10
Speaker 3: gains will be the next dollar. After all your ordinary
17:14
Speaker 3: income is added up. So to work with an example,
17:18
Speaker 3: if you had eighty thousand dollars of income from your
17:20
Speaker 3: job and twenty thousand dollars in capital gains from stock
17:24
Speaker 3: you sold, your capital gains will bring your tax bil
17:27
Speaker 3: income up to one hundred thousand dollars. Twenty on top
17:31
Speaker 3: of eighty is one hundred. Now, the first capital gains
17:35
Speaker 3: tax bracket, which we will go over in detail in
17:37
Speaker 3: a moment, goes up to about ninety six thousand dollars
17:40
Speaker 3: for a married couple. It's not exactly ninety six thousand,
17:43
Speaker 3: but to create some simple math, let's assume for a
17:46
Speaker 3: moment that it is. In our example, the capital gains
17:50
Speaker 3: stacked on top of the ordinary income that sit from
17:53
Speaker 3: eighty thousand to ninety six thousand dollars will be taxed
17:57
Speaker 3: a zero percent. The last four one thousand of the
18:00
Speaker 3: taxable income is beyond the zero percent capital gains tax bracket,
18:06
Speaker 3: and it reaches into the fifteen percent capital gain tax bracket.
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Speaker 3: So only that four thousand dollars of capital gains will
18:14
Speaker 3: be taxed at fifteen percent. Take that in for a second.
18:18
Speaker 3: I think it can too often be quick to bemoan
18:22
Speaker 3: taxes without fully understanding the places in the tax code
18:25
Speaker 3: that really benefit us. So in our example, we just
18:27
Speaker 3: realize twenty thousand dollars in capital gains and will only
18:31
Speaker 3: pay fifteen percent federal tax on four thousand dollars of
18:35
Speaker 3: those capital gains. If we do the mass, that means
18:39
Speaker 3: we pay just six hundred dollars in tax on twenty
18:41
Speaker 3: thousand dollars of capital gains. And that's an average tax
18:44
Speaker 3: rate of three percent. That might merit some appreciation. Of course,
18:49
Speaker 3: I am setting aside for another time the end of
18:52
Speaker 3: the conversation about the eighty thousand dollars of taxable ordinary income.
18:56
Speaker 3: The key rule is that your long term capital gains
18:59
Speaker 3: don't push your ordinary income into higher tax brackets. Your
19:03
Speaker 3: ordinary income determines where your capital gains begin their own
19:07
Speaker 3: journey of the tax bracket.
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Speaker 1: Really good illustration of a very complex topic. Talking this
19:12
Speaker 1: morning with Jenny Doty and CJ. Closs of COSS Financial,
19:15
Speaker 1: they are our retirement planning professionals. Of course, you can
19:18
Speaker 1: learn more online. The website Coss financial dot com. That's
19:20
Speaker 1: Coss k l a A S Financial dot com. They're
19:23
Speaker 1: tel for number six soh eight four four two five
19:26
Speaker 1: six three seven. No charge for that initial get to
19:28
Speaker 1: know your appointment tech Loss Financial. It will be complimentary
19:31
Speaker 1: to you again. Their number six oh eight four four
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Speaker 1: two five six three seven looks into our conversation with
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Speaker 1: CJ and Jenny. We will do that next as Money
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Speaker 1: in Motion continues right here on thirteen ten wib I
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Speaker 1: talking with our retirement planning professionals c J. Closs and
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Speaker 1: Jenny Doty. Of course they come to us from Class Financial.
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Speaker 1: The website Coss financial dot com. That's Coss k l
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Speaker 1: a A S Financial dot com. Tel Number six O
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Speaker 1: eight four four two five six three seven. No charge
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Speaker 1: for that initial gets to know you appoinment tech Coss Financial.
19:59
Speaker 1: It will be complimentary to you again. They're number six
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Speaker 1: so eight four four two five six three seven. Talking
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Speaker 1: about a pretty complex topic, and what's been great about
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Speaker 1: it is really nice work illustrating kind of how this
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Speaker 1: stuff works in the real world. And CJ. As we
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Speaker 1: kind of get through this topic and really helping folks
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Speaker 1: understand it. Let's let's kind of get into kind of
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Speaker 1: the how much far as earnings or income you need
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Speaker 1: for a calendar year and whether it let ordinary income
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Speaker 1: or capital gains income to really reach different rates within
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Speaker 1: each of those brackets.
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Speaker 2: Say, first off, great job, Jenny, I mean, this stuff
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Speaker 2: is complicated, and certainly I almost wish we could do
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Speaker 2: the show like with a whiteboard in a classroom, rights,
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Speaker 2: because it would certainly be easier that way. That's why
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Speaker 2: we talk often in visual terms, right, we say fill
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Speaker 2: up a bucket, because hopefully that helps our listeners visualize
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Speaker 2: in their own brains what it is that we're trying
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Speaker 2: to explain. But yeah, while we have helped listeners understand
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Speaker 2: that there's two different brackets that could apply to your
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Speaker 2: earnings and a calendar year, depending upon them the source
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Speaker 2: of that income, between the ordinary income or long term
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Speaker 2: capital gains tax of income, we haven't told you the
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Speaker 2: brackets themselves. So unfortunately, like everything in the US tax code,
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Speaker 2: there are brackets within the brackets. So set another way,
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Speaker 2: while there are two primary different brackets that could apply
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Speaker 2: to your income depending upon the source of that income,
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Speaker 2: that's that ordinary income tax bracket the long term capital
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Speaker 2: gains tax bracket. There are also various brackets within those
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Speaker 2: two brackets depending upon your filing status, so filing status,
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Speaker 2: believe it or not, there are a total of five
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Speaker 2: different filing statuses that include the following. Single is one
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Speaker 2: Married filing jointly is another category. Married filing separately is
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Speaker 2: a third category, head of household is a fourth category,
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Speaker 2: and qualifying widow or widower with a dependent child is
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Speaker 2: a fifth type of category. So there's five different categories
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Speaker 2: or what the IRS calls filing statuses. So as you
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Speaker 2: can imagine, we don't have time to describe why there
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Speaker 2: are five different filing statuses, but to keep things as
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Speaker 2: simple as possible, we're going to focus on describing the
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Speaker 2: tax brackets that apply to various levels of ordinary income
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Speaker 2: and long term capital gains taxable income for couples who
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Speaker 2: file as married filing jointly. So we're just gonna we're
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Speaker 2: just going to focus on that bracket now again. If
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Speaker 2: you are not married filing jointly, what I'm about to
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Speaker 2: explain to you is not your ranges, but you can
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Speaker 2: certainly call us up and we can give those to you,
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Speaker 2: or you can google the different ranges for different filing
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Speaker 2: status So again, for a couple married filing jointly in
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Speaker 2: the year twenty twenty five, the brackets for ordinary income
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Speaker 2: sources are ten percent for taxable income from zero to
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Speaker 2: twenty three, eight hundred and fifty twelve percent for taxable
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Speaker 2: income from twenty three. I'm going to round these numbers everybody,
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Speaker 2: twenty four thousand to ninety seven thousand, twenty two percent
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Speaker 2: tax on income, taxable income between ninety seven thousand and
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Speaker 2: two hundred and seven thousand, twenty four percent on two
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Speaker 2: hundred and seven thousand to three ninety five, thirty two
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Speaker 2: percent on income from three ninety five to five oh one,
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Speaker 2: thirty five percent on income from five oh one to
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Speaker 2: seven fifty two, and finally thirty seven percent on taxable
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Speaker 2: income over seven hundred and fifty two thousand dollars of income.
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Speaker 2: So think visually, as Jenny was just telling you before.
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Speaker 2: Each of those are buckets. The first twenty four thousand
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Speaker 2: dollars that a married couple filing jointly earns in a
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Speaker 2: year will be taxed at ten percent. That's the taxable
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Speaker 2: income portion that falls into that ordinary income bracket. Then
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Speaker 2: the next twenty four to ninety seven thousand is that twelve,
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Speaker 2: so on and so forth. So if somebody is at
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Speaker 2: a cocktail party, I'm just gonna I'm gonna be like
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Speaker 2: the DeBie Downer here and says, oh, we pay thirty
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Speaker 2: five percent tax on our income. Well, two things. They're
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Speaker 2: really just trying to tell you how much money they make.
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Speaker 2: By the way, so that's a little off putting if
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Speaker 2: you ask me. But number two, rarely, I mean I'm
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Speaker 2: talking rarely upon, rarely upon, rarely would they actually be
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Speaker 2: paying thirty five percent average across all of that income.
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Speaker 2: It's only the money over five hundred and one thousand
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Speaker 2: dollars that they're paying that thirty five percent on. So
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Speaker 2: you get my point. Wink wink. They're making over five
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Speaker 2: hundred grand and they're just trying to tell you that.
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Speaker 2: So if you were to actually say, hey, if somebody
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Speaker 2: makes five hundred and ten thousand dollars and they're in
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Speaker 2: the thirty five percent marginal income tax bracket, what would
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Speaker 2: their average tax be? It is way lower, everybody. We're
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Speaker 2: talking twenty two to twenty four percent, not thirty five percent.
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Speaker 2: That would be their average tax across at all that
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Speaker 2: ordinary income. Okay, and then finally, for the Taxier twenty
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Speaker 2: twenty five. The brackets for long term capital gain sources.
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Speaker 2: For a copy couple that is filing as married filing jointly,
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Speaker 2: those rates are zero percent for a combined taxable income
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Speaker 2: of ninety up to ninety six thousand, seven hundred, or
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Speaker 2: i'll just round ninety seven thousand, fifteen percent for a
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Speaker 2: combined taxable income nine of ninety seven thousand up to
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Speaker 2: six hundred thousand dollars, and then twenty percent for a
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Speaker 2: combined taxable income of over six hundred thousand dollars. So
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Speaker 2: you can see why for those who are listening, you
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Speaker 2: can see why. You'll often hear people say there's a
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Speaker 2: fifteen percent capital gain tax rate and then just kind
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Speaker 2: of say it quickly because for most Americans who have
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Speaker 2: capital gains that don't know what they're really talking about exactly,
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Speaker 2: they're going to fall into that fifteen percent range because
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Speaker 2: it's such a huge range. It's it's taxable income of
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Speaker 2: ninety seven thousand to six hundred thousand dollars, So most
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Speaker 2: people are going to be paying that fifteen percent rate.
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Speaker 2: But as Jenny just gave in her example earlier, and
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Speaker 2: I want everybody to pay special attention to this. If
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Speaker 2: you are strategic, you can actually have large portions of
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Speaker 2: your capital gains tax long term capital gains tax are
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Speaker 2: qualified dividends tax that zero if you manage it properly
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Speaker 2: and if you're able to. And then there is this
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Speaker 2: other thing I just want to mention at the very
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Speaker 2: end of our show here, because I know our CPAs
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Speaker 2: and then rolled agents out there going yeah, CJ. But
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Speaker 2: but but we are aware there's this thing called KNIT
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Speaker 2: net Investment income tax. So for those who don't know,
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Speaker 2: there is this other overlaying component known as KNIT where basically,
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Speaker 2: if you're taxable, your AGI gets high enough or your
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Speaker 2: tax on income gets high enough that you're going to
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Speaker 2: actually hit this other small tax known as NIT that
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Speaker 2: adds on an extra couple percentage to these higher rates.
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Speaker 2: But that's too much for this show today. I just
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Speaker 2: we're starting to combine too many concepts into one and
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Speaker 2: one another.
26:49
Speaker 1: When we talk to as we talked some morning with CJ.
26:51
Speaker 1: Closs and Jenny Doti, our retirement planning professionals from Class
26:54
Speaker 1: frantele so we talk about this stuff and the complexities.
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Speaker 1: One of the important things is working out a plan,
26:59
Speaker 1: having that strategy and of course working with folks that
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Speaker 1: understand all of the different nuances to help you develop
27:04
Speaker 1: that plan and strategy. It's a great day to start
27:06
Speaker 1: that relationship, start that conversation at COSS Financial. Of course,
27:09
Speaker 1: you can learn more online the website cossfinancial dot com.
27:12
Speaker 1: That's Coss k l aas Financial dot com. They're telephon
27:16
Speaker 1: number six oh eight four four two five six three seven.
27:19
Speaker 1: No charge for that initial get to know you appointment
27:21
Speaker 1: tech co Loss Financial. It will be complementary to you
27:24
Speaker 1: again their number six oh eight four four two five
27:26
Speaker 1: six three seven. Hold on to the number two. It's
27:28
Speaker 1: time now for the class quiz question of the week.
27:30
Speaker 1: It works like this. In just a moment, I'll ask
27:31
Speaker 1: you the class quiz question of the week. You will
27:33
Speaker 1: then have thirty minutes from the end today's program to
27:35
Speaker 1: call the Class Financial office right here in Madison at
27:37
Speaker 1: six oh eight four four two five six three seven.
27:40
Speaker 1: If you are the first call correct answer, win this
27:42
Speaker 1: week's prize, which is a twenty five dollars gift card
27:45
Speaker 1: to Jersey Mikes. This week's class quiz question of the
27:48
Speaker 1: week is this true or false? Long term capital gains
27:52
Speaker 1: are gains from selling assets you've held for more than
27:56
Speaker 1: one year. Telephone number six oh eight four four two five,
27:58
Speaker 1: six three seven, let's call it correct answer when the
28:01
Speaker 1: twenty five dollars gift card to Jersey Mike's never forgets. Well,
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Speaker 1: that's Class Financials office right here in Madison, CJ. It's
28:06
Speaker 1: always great chatting with you, Jenny. Great to meet you.
28:09
Speaker 1: Look forward to talking again real soon.
28:11
Speaker 2: Thanks Sean, thank you, thanks Jenny.
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Speaker 1: Of course we've got news coming your way next right
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Speaker 1: here on thirteen ten WIBA