definition of taxable income in capital gains tax computation

[ken-w]

I am looking into liquidating highly appreciated equity (stocks exercised from iso of my last employer) that will fall under long term capital gains over the coming years.  After doing online research I have come to believe that unless I move away from new york to say FL (other states with 0 income tax) I can't avoid paying state income tax on any of my capital gains.  For federal I found information that for joint filer like me if I may taxable income is below say $72,000 I pay $0 federal capital income tax.  What is not clear is on what it means by taxable income of $72,000.

1) Is this all salary we get by working for another company? 

2) Will any amount from the stock liquidation will be taken into account in taxable income?

3) Is $72,000 after deduction like employee contribution of eg $18,000/year 401k, $6000 health saving account, or before contribution?

[Carl]

1) That's only one possible source of taxable income. For an EXTREMELY rough list, look at lines 7 through 22 of the 1040.

2) Yes.

3) taxable income is the money you are paid from any and all sources, minus allowed deductions. For example, in 2018 you will get a $12K standard deduction. If filing MFJ then it's $24K. So the first 12/24K of your gross income will be tax exempt for the sole reason that you breath. Then if you pay qualified mortgage interest on your house, that interest you paid in 2018 is deducted from your taxable income. Then there's tens of thousands of other possible deductions, of which all won't apply to you of course.

Basically, your taxable income is on line 43 of the 1040. That line is labeled "Taxable Income".  On the 1040-A it's line 27.

[ken-w]

you answered yes to my question 2. that means that if i don't get any other income and stay jobless for the whole year my capital gain total must be below $72,000 in order for me to pay 0 federal income tax? if i go over that limit do i pay 15% of the difference in my total capital gain and $72,000?

[Carl]

I don't see what gives you the impression that you won't have to pay taxes on a $72K long term capital gain. Your question 2 asks if the gain will be "taken into account". The unequivocal answer is yes, it will be taken into account without question.  For a long term capital gain you will pay a minimum of 15% tax on that gain if your AGI puts you in a lower tax bracket, or a maximum of 25% on that gain if your AGI puts you in a higher tax bracket. There's nothing "tax free" about it.

[ken-w]

i was going by this page for long term capital gain tax of 0% for joint filers

https://www.nerdwallet.com/blog/taxes/capital-gains-tax-rates/

[Carl]

The page your referenced is highly misleading, as it does not include a lot of relevant facts. That's why it's not safe to go by what a third party website may say. The only taxing authority at the federal level is the IRS, and the only valid, trustworthy and complete interpretation of federal tax law is on the irs.gov website. 

I point you to tax topic 409 at https://www.irs.gov/taxtopics/tc409 where it clearly states, "Some or all net capital gain may be taxed at 0% if you're in the 10% or 15% ordinary income tax brackets." Emphasis on the word "may" is mine. A $72K gain alone puts you in the 22% tax bracket, weather you're filing MFS or MFJ or single. The only way you would pay 0% taxes on the gain, is if it was less than $9,526 if filing single or MFS, or less than $19,051 if filing joint.

I saw on the Yahoo Finance website where it says capital gains for single is zero for gains/income less than $38K  Yet Forbes says it's 12% if between $9,526 and $38,700. All these third party websites have their own interpretation of the new tax laws. They're worthless and meaningless, not to mention wrong much of the time.