I find the https://taxact.com/tools/tax-calculator calculator easier to use than the one posted up thread. You can skip straight to the income tab. Click the additional income button to see where you add qualified/non-qualified dividends, short/long term capital gains and taxable IRAs (which is how you would simulate roth conversions). Playing around with that (and looking at the tax brackets) should give you a good idea of how various forms of income interact with the tax brackets.
That's tool is not easy either. I don't see anywhere to put in LT cap gains. Anyway, I'm really hoping to understand how this works rather than just see a total tax number spit out.
I explained how to do that. See the bolded section of my quote above. Yes, don't use it to put it numbers and see what it spits out. Use it to change numbers and see what happens. Add $1000 to one of the income types and see what happens to your tax liability. Although, messing around with your example below, the calculator seems to be adding higher deductions than it should, and I'm not sure why, so maybe better not to rely on it. It might be broken.
The top of the 15% bracket for single filers is actually $37,950, and that's after the $6350 standard deduction and $4050 personal exemption. To hit the "real" top of the 15% bracket you'd need to bring in $48,350 in some form of income. See https://taxfoundation.org/2017-tax-brackets
Got it, okay. I was confused by the AGI talk earlier in the thread. So let's use the $48,350 cutoff moving forward as the beginning of the 25% regular income tax rate and 15% long-term cap gains rate.
I can have plenty of regular income. I have ~$80k in my Trad IRA I could convert, so it won't be a problem to get near that $48,350 figure.
I think the $37k is probably from when I mentioned the savers tax credit above. It's another limit you may wish to stay under if you would like to get that credit (worth $200, $400, or $1000 off your taxes depending on what income limit you stay under), but if you want to maximize roth conversions and capital gains harvesting, then you should just ignore this and worry only about the tax brackets.
Given those assumptions you would pay 15% on the amount of "regular" earned income over the 10% bracket, and 0% on the capital gains assuming they are long term capital gains.
How's that work exactly? Here's the question again with our new numbers:
$46,350 regular income
$5,000 in long-term capital gains
1. What percentage of regular income is taxed at the 15% marginal rate (or less) versus the 25% marginal rate?
2. What percentage of long-term capital gains income is taxed at the 0% marginal rate versus the 15% rate? And why?
1. I'm not going to figure out percentages, but $10,400 ($6350 standard deduction + 4050 personal exemption) will not be taxed. The next $9,325, so income between $10,400 and $19,725 will be taxed at 10% for a total of $932.50. Then the next $37,950, or income between $19,725 and $48,350, so the final $26,625 would be taxed at 15% for a total of $3,993.75. $2000 of your $5000 long term capital gains would then fall within the 15%, and $3000 within the 25% bracket, so $3000 would be taxed at 15% for a total of $450. 932.50 + 3,993.75 + 450 = total tax due of $5,376.25.
2. See question 1. $2000 is taxed at 0% because it falls within the 15% bracket, $3000 is taxed at 15% because it falls within the 25% bracket.