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Beginning this year, and extending at least through 2010, certain long-term capital gains and dividends may be taxed at a zero-percent rate for federal income tax purposes.
 If you are a higher-income taxpayer with significant income not attributable to capital gains or dividends, you may not qualify for the reduced rate due to applicable income limitations. The same may be true for your minor or college-student children as their income is often taxed at your tax rate under the current kiddie tax rules. But many middle-income and retired taxpayers will qualify for the zero-percent tax rate--as will more affluent taxpayers, if a majority of their income is attributable to capitals gains and dividends.
Like many tax calculations, determining the amount of your income that is taxable at the zero-percent rate is a bit complicated. It is generally equal to your adjusted net long-term capital gains and your qualified dividend income, subject to certain limitations--and it cannot exceed your taxable income.
You can apply the limitations as follows:
 Begin with the amount of your income that would otherwise be taxable at 25 percent. For 2008, that is $32,550 if you are a single taxpayer or a married taxpayer filing a separate return, $65,100 if you are a married taxpayer filing a joint return or a surviving spouse, and $43,650 if you are a head of household.
Subtract your regular taxable income--in other words, your taxable income reduced by your adjusted net capital gain. (Net long-term capital gain refers to long-term capital gains less short-term capital losses. Adjusted net long-term capital gain is net long-term capital gain, reduced by gains from the sale of collectibles or small business stock, and gains attributable to depreciation on the sale of real property.)
The result is the maximum long-term capital gain and dividend income subject to tax at the new zero-percent rate.
If all that leaves your head spinning, our tax experts can help.
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If you would like to discuss your tax liability for 2007
or your tax plan for 2008, give us a call.
We can help. |
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Walt Smith is a shareholder in the Bader Martin tax practice. He is also the firm's managing shareholder.
Walt provides a blend of tax, financial, and business consulting services for privately held businesses and their owners. Many of his clients are new or emerging businesses, or companies struggling to meet financial or operational challenges.
Walt has extensive work experience in tax and financial reporting for real estate developers, investors, owners, lessors, and managers. He directs the firm's real estate practice and is a recognized expert in commercial and residential real estate, and partnership syndication. |
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The subject matter contained in this newsletter is often complex, with nuances that cannot be fully described in a single article or announcement. It is therefore vital that you consult with us -- and your legal and investment advisors, as appropriate -- before implementing ideas contained in the newsletter. Bader Martin, PS is not responsible for misinterpretations, errors, or omissions related to the content of this newsletter. Nor are we responsible for its applicability to your personal, business, or tax situation. |
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