FORMULA FOR PAYING NO TAX ON 100k
December 11, 2019 - Douglas Myser
Formula for paying no tax on 100k. The question of how much can we earn without paying federal income taxes is relatively easy to answer for most people. The standard deduction for a married couple is $24,400 in 2019 (if both are under 65 years old) and the top of the 0% capital gains tax bracket, is $78,750. So we can make a total of $103,150 a year, provided that our ordinary IRS income stays below the standard deduction and the rest comes from long term capital gains and or qualified dividends. Those who aren't married should halve these dollar numbers. The IRS is increasing these numbers slightly for 2020. Formula for paying no tax on 100k.
With our daughter, we also qualify for the child tax credit, $2000, so we could actually generate another $13,333 per year in dividends or capital gains, taxed at 15%. The tax liability of $2,000 exactly offsets the tax credit, for a zero federal tax bill. Once people file for Social Security benefits, though, things become a bit more complicated. That's due to the convoluted formula used to determine how much of your Social Security is taxable income. So calculating and plotting the tax free income limits is a tad more complicated. In mentioning capital gains and dividends as tax advantaged income because long term capital gains and qualified dividends are taxed at a lower rate. I may sometimes drop the terms "long term" and "qualified" because it doesn't always fit into the chart labels. Keep in mind that short term capital gains and non qualified dividends will fall into the ordinary IRS income bucket, taxed at a higher rate. Here are the income limits for a married couple. They can claim a $24,400 standard deduction in 2019 as well as up to $78,750 of long term capital gains taxed at 0%. SO to stay tax free, we need to stay under the that. Formula for paying no tax on 100k.
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