State tax filing

Thank you, @Mike9241, @Hal_Al & @rjs! Your clarifications were very helpful. I particularly appreciate the breakdown to help me understand the process and sequence (it’s how my brain works things out).

To reiterate my understanding, LTCG CAN push you into a higher tax bracket in the sense that it becomes a part of your total income. However, those LT CGs will NOT put your income (itself) into a higher tax bracket. Income is first taxed at its respective rate, then we add gains, and the tax rate for the LT CG corresponds to what the CG + income puts me in. 

The LTCG are taxed in ‘tiers (not sure the right word), where the delta to get from our income up to the $89.25K, has a 0% tax rate, but the amount that puts us between $89.25K and the next ‘tier’ are taxed at 15%… (Darn, now the flat income tax the state applies is sounding better than the federal rates.)

At the risk of sounding like a mooch for your help and expertise, one of you mentioned “adjustments” which could impact taxable income, along with deductions. We do not have daily childcare to deduct, only $900 in FSA childcare deductions for camp, about $1k in 401k contributions, $300 in educator expenses (teacher), <$10k in HSA contributions, and zero student loan interest or tuition. Together, our gross income is around $70k. We will take the standard deduction of $25,500 vs itemized given the above numbers.

OTHER DEDUCTIONS: 

• I MAY have enough out of pocket medical expenses to deduct, but I’ll determine that when I file… I have to audit it for our family and am not sure we meet the 7.5% against our $70k gross income - we have a HDHP, and I believe we MAY have had out of pocket expenses >$7K which may be deducted… tbd. For my math below, let’s assume I can’t deduct medical expenses.
• We also can deduct our mortgage interest, as well as $4k ($2k x 2 kids) in child tax credit (plus I think there’s some portion of refund for child tax?), but I do NOT think those impact our taxable income. Please let me know if I’m wrong on that.

As I work through my understanding and the math, I have 5 questions/thoughts I would be very grateful for your expertise to verify (or correct) how I’m processing and applying what I understand:

Question 1: does the medical expense deduction, if any, qualify based on whether it >7.5% of our gross income (income before deductions, and excluding any LT CG)?

Question 2: Am I correct in my understanding that the standard $25.5k deduction REPLACES individual deductions [i.e. FSA, HSA, edu expense, 401k, and (if any) medical expenses >$7.5% of gross (?) income?]

Question 3: Would I then take gross income of $70k, and simply deduct the standard deduction of $25.5k, to reach my taxable income amount of $44.5k?

Question 4: IF Q3 is correct, does that mean I can trade stock with LT gains up to $44,700 for 0% LT CG Tax, before NC’s flat 4.5% income tax rate applied to all LTCG?

[Calculated using cap for 0% fed LT CG tier of $89.25K - $44.5K of taxable income = $44.75K in LT CG taxed at 0%.]

Question 5: IF Q4 is correct, then any LT CG BEYOND $44.75K (up to max for that tier, which I won’t hit), is taxed at 15%?

[Q5 Example: if above is correct, and if I sold with LT CG of $100k, $44.7k of that has 0% fed tax, and the remaining $55.25K would be taxed at 15%. This example, with taxable income assumed at $44.5K, would leave me owing $8,287.5 in federal LT CG (calc’d at 15% of $55.25K), PLUS $4,500 in state taxes (calc’d using all $100k of example’s LT gains, at flat NC rate of 4.5%.)]

Thank you, all, again! I appreciate your help!