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I understand the LTCG tax rate depends on your taxable or "ordinary" income. So, if I'm single, and I work a day job in 2022, and I made less than $41,675 in my day job, the tax rate for my LTCG is 0%.

Now consider hypothetically my current day-job salary is $41,675, and my boss wants to give me a $1 bonus. If I take the bonus, my taxable income becomes $41,676. Does this mean my capital gain tax rate jumps to 15%? So, the bonus would actually hurt me?

Please note this question focuses on the "ordinary income", in contrast to the related but different questions here and here.

jack
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Does this mean my capital gain tax rate jumps to 15%?

No. That's not how the bracket works.

Let's do a simple example. Let's say you have $30,000 taxable income and $20,000 in long term capital gains.

The difference between your taxable income and the 15% tax bracket threshold is tax free. You pay no taxes on the first $11,675 of your capital gains.

You pay 15% on the amount by which your combined income exceeds the threshold. That's $8,325 and your long term capital gains tax is 1,248.75.

The more regular income you make, the more of your long term gain are pushed above the threshold. If you make one more dollar, one more dollar becomes taxable and you pay $0.15 taxes on it

Hilmar
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I understand the LTCG tax rate depends on your taxable or "ordinary" income.

That is incorrect. LTCG tax rate depends on your taxable income. Not "ordinary", taxable. Capital gains are included in the taxable income.

Consider someone who has no earned income but has millions in capital gains - would it make sense to you that they pay no taxes?

See the IRS Tax Topic 409 and the publications it links to.

littleadv
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