I'm familiar with how tax brackets / marginal rates work (i.e. I know "moving into a higher bracket" only affects the rate for the additional income, not all income). I also know that long-term capital gains are taxed at different (lower) rates than regular income.
I'm wondering how these rates and brackets interact.
Suppose, for example, I'm single and have employment income of $62.4k, plus another $50k in long-term capital gains. After the standard deduction, my taxable income is an even $100k, so I'm in the 15% long-term gains bracket and the 24% income bracket. Thus I'd expect to be taxed at a marginal rate of 24% on additional regular income. But my regular income alone was in the 22% bracket!
Does income count as "first" based on the actual time at which I earned it, or does all of my employment income come "first" for determining taxes, followed by long-term gains at the appropriate rate?
As a follow-up, what rate would I be saving if I contributed to a pre-tax 401(k) in this scenario? 22% ? 24%? 15%?
Submitted September 23, 2020 at 04:59PM by dramavegetable https://ift.tt/3kCZghS
