Does your standard deduction apply to your calculated annual income for short term capital gains?

[dynamite369]

Suppose my annual income is at $56,000 for 2020 and I am filing as a single tax filer, which would entitle me to a $12,400 standard deduction. Can that $12,400 be subtracted from my $56,000 income to bring down my owed taxes in short term capital gains (as my annual income would only be $43,600) or does the standard deduction not apply when calculating capital gains?

Example: If I traded a stock  with an initial value of $100 and sold it for a value of $1,000. I have a short-term capital gain of $900. Would my capital gains tax be $248 if the standard deduction didn't apply or $158 if the standard deduction applies.

Tax Type	Marginal Tax Rate	Effective Tax Rate	Tax Amount
Federal	22.00%	22.00%	$198 or $108
NJ State	5.53%	5.53%	$50 or $50
Local	0.00%	0.00%	$0
Total Capital Gains Taxes		$248 or $158

Please let me know if I my calculations are accurate for this example. Thank You!

[dynamite369]

Example: If I traded a stock  with an initial value of $100 and sold it for a value of $1,000. I have a short-term capital gain of $900. Would my capital gains tax be $248 if the standard deduction didn't apply or $158 if the standard deduction applies.

Tax Type	Marginal Tax Rate	Effective Tax Rate	Tax Amount
Federal	22.00%	22.00%	$198 or $108
NJ State	5.53%	5.53%	$50 or $50
Local	0.00%	0.00%	$0
Total Capital Gains Taxes		$248 or $158

Please let me know if I my calculations are accurate for this example. Thank You!

[Critter-3]

Of course the standard deduction is applied to your taxable income before the tax is calculated ... save a PDF of the return and look at the calculation worksheet. 

[Critter-3]

Short term cap gains are taxed at the same rate as ordinary income.

Gross income - standard deduction = taxable income x reg tax rate = tax owed. 

[Anonymous]

if you don't itemize and can't be claimed as a dependent on someone else's return you'll get the maximum standard deduction $12, 400 for 2020.  what makes up your income is irrelevant.

for 2020 for income between about $40,100 and $85,500 you pay 22% (marginal tax rate) in federal taxes

federal 900*.22 = 198 your state tax is 900*.0553= 50

don't know how you came up with $108 that's 12% on $900

[fanfare]

Don't take short term capital gains.

Long Term gains get much more favorable tax treatment.

[Hal_Al]

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)