How to Calculate Taxable Income With Long Term Capital Loss & Withdrawals

by Alexis Lawrence

Taxable income consists of two separate sources, income from employment and savings, and profits from the sales of investments. Income from employment and savings is taxed by the Internal Revenue Service at the earned income tax rate. Investment income is taxed based on the capital gains tax rate. Both figure into your income to determine your tax liability for the year.

Add any withdrawals you make from savings accounts, such as individual retirement accounts (IRAs), to the income that you earn through employment to determine your total earned income. If you earn $50,000 from work, for example, and withdraw $23,000 from an IRA, your earned income total is $73,000.

Continuing with the example from the previous step, assume you had a $3,000 capital loss from your income. In this case, you would end up with $70,000 of income.

Consult the IRS tax table to get the base tax for your income bracket and the tax rate for additional income in that bracket. The $70,000 of earned income, for example, fits into the $45,550 to $117,650 tax bracket, which comes with a $6,235 base tax and taxes all income over $45,550 at a rate of 25 percent.

Multiply the total earned income over the base figure of the tax bracket by the given tax rate. In the case of $70,000 of earned income, subtract the base $45,550 from the $70,000 to get $24,450 and multiply the $24,450 by 25 percent to get the additional tax after the base tax, or $6,112.50.

Add the base tax to the additional tax. With $70,000 income with a base tax of $6,235, and an additional tax of $6,112.50, the total tax equals $12,347.50.

About the Author

Alexis Lawrence is a freelance writer, filmmaker and photographer with extensive experience in digital video, book publishing and graphic design. An avid traveler, Lawrence has visited at least 10 cities on each inhabitable continent. She has attended several universities and holds a Bachelor of Science in English.