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Lev
Lev, Tax Advisor
Category: Tax
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Experience:  Taxes, Immigration, Labor Relations
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I need a tax lawyers advice: I made $35,000 this year in

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I need a tax lawyers advice:

I made $35,000 this year in standard income. I file head of household with 1 dependent. I earned about $8.000 in mortgage credits. I am receiving $650,000 in long-term capital gains of a business asset that I have. The $650,000 is the amount that I will receive personally. Would you please breakdown my 2013 tax liabilities given this information?

Lev :

Hi and welcome to our site!
I assume $35,000 in wages and $8.000 in mortgage interest deduction.
Assuming head of household filing status with ONE dependent child.
With additional $650,000 in long-term capital gains - following are estimations
-- Adjusted Gross income (AGI) $685000


-- Greater of itemized or std. deduction - $8950
-- Taxable Income - $676050
Your estimated tax liability is $145177
including regular tax $97387 and alternative minimum tax (AMT) - $29360 and Net Investment Tax $18430.

Customer:

Im not quite sure I understand

Lev :

Most likely - you will be able to itemize - and your deduction will be more than $8950 - but we do not have enough information for that estimation.
Specifically - you may deduct TX sales tax - your in come level $1820.

Lev :

Please be sure to ask for clarification.

Customer:

let me be clearer. i am selling a c corp that i am 100% shareholder of. $650,000 is being paid directly to me and not the c corp as it is considered the sale of personal goodwill. i am not necessarily selling a physical asset

Lev :

If you are selling shared of C-corporation - you will realize a capital gain.
The gain will be calculated as (selling price) MINUS (basis)
If you owned shares more than a year - the gain will be treated as long term capital gain.
You are selling shares of the corporation.

Customer:

i was under the assumption that long term capital gains tax would apply to the $650,000 which means that the minimum and maximum of this amount ranges from 0 - 20%. additionally, what about the 3.8 percent of medicare tax?

Lev :

Your assumptions are correct.
However because your total income is above $250k - the long term capital gain is taxed at 20% rate plus 3.8% additional tax plus AMT.

Customer:

but isn't it put into brackets? for example, the first $48k is 0%, from 48-425 is 15%, and then the final $225 is at 20%?

Lev :

Your estimated tax liability is $145177 including
-- regular tax $97387
-- alternative minimum tax (AMT) - $29360
-- Net Investment Tax $18430 - so-called "Medicare tax"

Lev :

but isn't it put into brackets? for example, the first $48k is 0%, from 48-425 is 15%, and then the final $225 is at 20%?
Yes - the long term capital gain is taxed at your actual tax rates - but not more than 20%

Customer:

so wouldnt my tax liability be the following at worst case:

Customer:

first $48,600 - $0 Tax due

Customer:

Amounts between $48,601 - $425,000: $56,400

Customer:

Amounts between $425,001 - $650: $45,000

Customer:

Medicare 3.8% only applies over $225,000 - so therefore that liability would be only: $16,250

Customer:

my assumed total liability (without taking deductions into account) would be $0 + 45,000 + $56,400 + 16,250 == $117,650

Lev :

Your estimated Taxable Income - $676050 (after deductions as above)
Tax rates will be - see page 3 - http://www.irs.gov/pub/irs-drop/rp-13-15.pdf
TABLE 2 - Section 1(b) – Heads of Households
-- first $48,600 will be taxed $6,652.50
-- the rest will be taxed at 20% as long term capital gain ($676050 - $48,600) * 20% = $125,490
Total $132142
That would be regular income tax liability.

Lev :

You will add 3.8% Net Investment Tax on $650,000 of capital gains = $24700
and the rest will be AMT - total will be about $145,000.

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