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Zecco.com » General Investing » Tax Matters » Tax on Income and Trades
Last post 07-18-2009, 11:49 PM by jacobyjj. 3 replies.
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  •  06-07-2009, 4:18 AM 57691

    Tax on Income and Trades

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    I have several tax related questions concerning short term capital gains added to my yearly income. I am in Iraq, and I will qualify for the IRS tax free break on the first $91,400 earned, due to the 330 days out of US.  Between me and my wife, we will both contribute our max to our 401K’s, which will shelter an additional $33,000. Our remaining taxable income will be around $35,000. Can anyone tell me what percentage my taxable income will be taxed at? Does the IRS look at our total earned income for our tax percentage bracket or only at the taxable amount? We file jointly and we have three kids to claim. Do I need to show a loss in my trading to benefit from not being taxed heavily? Do I need to pay Quarterly Estimated Tax to avoid penalty? I’m having all tax withheld currently.

  •  06-07-2009, 1:36 PM 57827 in reply to 57691

    Re: Tax on Income and Trades

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    You are taxed on the Adjusted Gross income.  The rest of the answer requires doing a mock up of your return. 

    I'm not sure there's any reason to show a loss on your trading unless you actually have a loss.  A loss is a loss.  It appears that the opposite would hold true.  Since you are not being taxed heavily, profits would hurt you less.  Be aware that if you sell a stock to report a loss at the end of the year, there is a time limit before you can buy the same stocks back.

    If you are currently having tax withheld, and the taxable portion is going to be low, you shouldn't have a need to pay Quarterly Estimated Tax.

    I'm not a tax professional, my own knowledge is based on doing my own and my business taxes. 

    I'd download all the appropriate forms and instructions, and do a mock up of your taxes for the year, estimating all you know already.  This would be educational and answer most of your questions.

  •  06-08-2009, 8:34 AM 58431 in reply to 57691

    Re: Tax on Income and Trades

    Reply Quote
    The amount you are able to exclude from income, derived from Form 2555, is subtracted on line 21 from your total income.(line 22).  Then your total income is subject to certain adjustments to arrive at adjusted gross income (line 37).  Adjusted gross income, AGI, is just a step on the way to determining taxable income.  AGI is then reduced by your personal exmptions and either your itemized deductions or your standard deduction to arrive at taxable income (line 43).  Taxable income is the amount on which you are taxed.  Therefore it would appear that any additional income from whatever source would be taxable at your marginal rate for your level of taxable income.  However I have no idea how the foreign earned income exclusion is treated for alternative minimum tax purposes.  I'm guessing it is not an add back in determining AMT income but that is just an educated guess.  You should read Publication 54 for an overview of the topic of taxation for Americans living abroad.

  •  07-18-2009, 11:49 PM 60592 in reply to 57691

    Re: Tax on Income and Trades

    Reply Quote
    I am sorry to say, but your tax bracket is 25%, so you will pay 25% short term capital gains. Although your taxable income is very low $35,000-10,900(Standard deduction)-7,000 (personal exemption for two) = $17,100, taxes are calculated the following way:
    Tax on $108,500 (91,400+17,100) minus tax on $91,400, which is higher (25% bracket) than tax on just $17,100 (15% bracket). So you will pay 25% on each dollar made as short term capital gain.
    Also,just to make sure you understand it right, Foreign Income Exclusion (Form 2555) is only for income earned in  foreign countries. You cannot exclude money made by your wife in the US or capital gains, dividends and interest. When you do the tax return, make sure that the foreign tax credit is not better for you than the exclusion.
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