Which tax is better? Self-Emp or Income

Technical topics regarding tax preparation.
#21
lucyko  
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Jake ,
Yes you are correct that the 20 % QBI deduction will reduce taxable income and not AGI and therefore no relief to the ta quirks you mention .

A tax quirk that will help certain taxpayers who take the QBI deduction is the zero capital gains rate when your taxable income falls in the lowest 2 tax brackets.
 

#22
makbo  
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lucyko wrote:zero capital gains rate when your taxable income falls in the lowest 2 tax brackets.

Except it's no longer (for eight years) based on tax brackets, it's based on an chained-CPI-indexed amount, which is roughly the same as it was under the bracket-based value.
 

#23
Jake  
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makbo wrote:
lucyko wrote:zero capital gains rate when your taxable income falls in the lowest 2 tax brackets.

Except it's no longer (for eight years) based on tax brackets, it's based on an chained-CPI-indexed amount, which is roughly the same as it was under the bracket-based value.


That is all Greek to me. Never read that anywhere.
 

#24
Nilodop  
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Section 1(h) is fairly close to Greek.
 

#25
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Jake wrote:
makbo wrote:
lucyko wrote:zero capital gains rate when your taxable income falls in the lowest 2 tax brackets.

Except it's no longer (for eight years) based on tax brackets, it's based on an chained-CPI-indexed amount, which is roughly the same as it was under the bracket-based value.


That is all Greek to me. Never read that anywhere.


It was part of the December tax law. If the writers of the bill did nothing to capital gains, the 0% capital gains rate would have applied to income in the 10%, 12%, 22%, and 24% brackets instead of just the 10% and 12% as intended. So they decided to decouple the capital gains brackets from the income tax brackets, but they wrote it erroneously such that there is a slight difference in the bracketology.
 

#26
makbo  
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missingdonut wrote:It was part of the December tax law.

I was also alluding to the new index for indexed numbers. I originally started to write "inflation adjusted" in my previous post but of course that is inaccurate. The Chained CPI index is designed to grow more slowly than what most consumers, wage earners, and retirees would consider to be the actual rate of inflation. So, it works in the government's favor, the time-honored trick of letting inflation trigger stealth tax increases because of tax threshholds for phaseouts and such that don't keep up. Think of the Retirement Saver's Credit which phases out at what, $25K AGI? Or the Soc. Security MAGI threshold.
 

#27
Jake  
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I have married couple client with a relatively low income that sold a lot of low basis stock in 2018 given to them by their parents. I look forward to see how Proseries calculates their tax liability on those ltcg's. Under the former law the gains would probably be zero tax.
 

#28
lucyko  
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Imput the data correctly and it should work :zero long term capital gains tax on the federal .Of course this quirk applies only to federal and not Ohio
 

#29
makbo  
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Jake wrote:Under the former law the gains would probably be zero tax.

The new law has just about the same taxable income threshold as the old law.
 

#30
makbo  
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makbo wrote:The Chained CPI index is designed to grow more slowly than what most consumers, wage earners, and retirees would consider to be the actual rate of inflation.

While most TCJA provisions are temporary for eight years, I believe the chained-CPI index change is permanent.
 

#31
Nilodop  
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"Which tax is better?"

"There is nothing either good or bad but thinking makes it so."
 

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