Q. Does your standard deduction apply to your calculated annual income for short term capital gains?
A. Yes. The standard deduction applies to ALL income. Although long term (but not short term capital gains) are taxed at a special rate, determining your taxable income is straight forward. It's total income less either your standard deduction or itemized deductions.
Short term capital gains are taxed as ordinary income.
Suppose your annual income is at $56,000 for 2020 and you are filing as a single tax filer, with a $12,400 standard deduction. Minus your $12,400 std deduction, your taxable income is $43,600. That puts you in the 22% tax bracket. Any additional ordinary income, like a $900 ST cap gain, is taxed at 22%. $900 x 0.22 = $198.
$900 x 12% = 108. NO! Your 12% income is already included in the first $43,600 of your taxable income, and has already been accounted for:
$9875 x 10% = $988 tax (federal only)
$30,250 X 12% = $3630 tax
$3475 x 22% = $765 tax
$43,600 $5383 Total federal tax (this assumes you had no long term capital gains or qualified dividends)
