How You Can Grab a 0% Tax Rate
The zero rate on investment income is often overlooked. Make sure it’s in your tax tool kit.
How You Can Grab a 0% Tax Rate
The zero rate on investment income is often overlooked. Make sure it’s in your tax tool kit.
By Laura Saunders, The Wall Street Journal, March 31, 2023
Zero, zip, zilch: The U.S. tax code has a 0% rate on investment income, even for Americans with significant assets. …
Nominally, the rate disappears for single filers with taxable [adjusted income after deductions] above $44,625 and joint-filing couples with income above $89,250 for 2023. … So the 0% rate can apply to at least $58,475 of capital gains and dividends for single filers and $116,950 for married joint filers — far above the nominal limit [income before adjustments and deductions]. It can be higher still if the taxpayer has more deductions, is self-employed, or is age 65 or older. For married joint filers ages 70 and 72 who take the standard deduction, the 0% rate typically applies to at least $119,950 of eligible income. …
The 0% rate applies to net long-term capital gains and most dividends. It doesn’t reduce rates on wages, taxable interest (as from bank accounts or bond funds), pensions, net short-term capital gains on investments held a year or less, taxable Social Security payments, IRA or 401(k) distributions or Roth IRA conversion income. …Under the law, the income eligible for the 0% rate “stacks” on top of a filer’s other income. The more other income there is, as from a pension or Social Security, the less ability there is to use the 0% rate. … [end quote]
The 0% tax rate favors stock market investors in non-retirement accounts. Because of the “stacking” rule, retirees (or people between jobs) benefit most…as long as the retirees aren’t taking Minimum Required Distributions from IRAs.
Wendy (cross-posted on METAR)