26 Nov 2011

Warren Buffett Bask

All Posts 10 Comments

In his famous op ed in August, Warren Buffett wanted the government to stop coddling him and raise his taxes. He wrote that his federal tax bill was just under $7 million, and that what he “paid was only 17.4 percent of my taxable income.”

OK so presumably that’s because most of his income consists of realized capital gains, which are generally taxed at 15 percent.

However, I am trying to use IRS Form 1040, and pretend I’m Buffett. On line 13 of the form, you report your capital gain (or loss) and mix it in with other forms of income. This gives you your AGI.

Then on the back side, you take out exemptions and deductions, and end up with your “taxable income.” Then you figure out what your tax is, based on the income.

So my question: I know that people say capital gains are taxed at 15 percent. But where exactly does that show up when we’re doing Buffett’s taxes? I see that after you get the taxable income on line 43, it’s not a simple matter to just go look up in the tax tables to see how much you owe. Instead, if you had to fill out Schedule D (which Buffett would have to because of capital gains), then you have to use other worksheets to figure the tax.

But where exactly is it? There is a worksheet in Schedule D’s instructions that, halfway down, has you multiply the figure by .15. (A little later it also brings in .28.) Are these the much ballyhooed 15 and 28 percent capital gains tax rates?

Please, if you are going to answer, it would be nice if you actually know what you are talking about. Thanks.

10 Responses to “Warren Buffett Bask”

  1. Aristos says:

    I cannot help. Alas! But I can point out that Buffet has a tendency toward insincerity. He’s so much a part of the corrupt system, it’d be ludicrous to look to him for advice on how to extricate us all from the hole that the Caesars have dug.
    In th end, if Buffet thought that he should pay more, he could do so. What he’s talking about is using the threat of violence to coerce others to forfeit THEIR (not his) property.
    I don’t trust him any more than Ed Rooney can throw him.

  2. Nick says:

    Nothing stopping him writing a cheque out now.

    Oh, he hasn’t.

    Yep, he wants other people to pay more tax. Hypocrite.

  3. Perry says:

    You would only use the worksheet in Schedule D if you have special types of capital gains such as gains on Small Business Stock (28%), Gains on Recaptured Depreciation (25%), Gains on collectible assets (28%) etc.

    If you don’t have those special types of gains, just use the Qualified Dividends and Capital Gains Tax Worksheet – Line 44 in the 1040 instructions. It splits up the capital gains from ordinary income and taxes it at the 15% rate. The tax from ordinary income is figured and added to the capital gains tax and put on line 44.

    I’m not a CPA yet, but I’m pretty sure this is how it works according to the instructions. Hope this helps!

  4. Seth says:

    Did you trace back through the Schedule D? I believe that’s where it’s determined how much of your capital gains to report.

  5. Joseph Fetz says:

    “Please, if you are going to answer, it would be nice if you actually know what you are talking about. Thanks.”

  6. Tel says:

    There are a bunch of free calculators on the web. They are very easy to plug numbers into, one would guess if you are getting the same answer from more than one place then at best it’s the right answer, at worse you won’t come away looking any stupider than the next guy.


  7. Bob Roddis says:

    What is the justification for taxing non-existent nominal “gains” caused by diluted funny money? Or why shouldn’t cost basis be indexed for inflation while we await the return to constitutional money?

  8. Brent says:

    At the risk of pointing out the obvious, only long term capital gains are subject to the special, lower rate. Short term (under a year) are taxed as ordinary income.