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Tax Report: Marginal Bracket Information

The Tax Report breaks out marginal bracket information for both Ordinary Income and Long Term Capital Gains & Qualified Dividends

 

Ordinary Income

Holistiplan will calculate the amount of taxable income that is considered ordinary income, such as:

  • Wages

  • Taxable Social Security

  • IRA withdrawals

  • Taxable interest

  • Ordinary dividends

  • Short-term capital gains

Ordinary income is taxed using the marginal rate structure, where progressively larger amounts of income are taxed at higher and higher rates. 

In this case, Peter and Paula had $151,926 of ordinary income, which puts them in the 22% bracket. Many people assume that their marginal bracket is equal to the tax rate on all of their income, which is not the case. Instead, this is the rate at which all the ordinary income in that 22% bracket ($96,950 to $206,700 in 2025) is taxed. But they paid taxes at the 10% and 12% rate on the dollars in the prior marginal bracket as well.


Qualified Dividends and Long-Term Capital Gains

Qualified dividends and long-term capital gains enjoy preferential tax treatment, with rates of 0%, 15%, and 20%. This type of income will always be taxed at lower rates than ordinary income. By separating this type of income from ordinary income, the Tax Report allows users to highlight this concept.

Peter and Paul had $34,500 of qualified income (long-term capital gains (LTCG) and qualified dividends), which was taxed at the 15% rate. The LTCG brackets, like the marginal brackets on ordinary income, are progressive, and you can have income taxed at multiple LTCG rates.

Lower-income taxpayers may enjoy an even cheaper rate for long-term capital gains and qualified dividends. Any amount of taxable income up to about the threshold for the 12% marginal bracket, which is made up of qualified dividends and long-term capital gains, is taxed at 0%. Once that threshold has been reached, the rate increases to 15% for the next dollar of qualified dividends or long-term capital gains, followed by a 20% rate at a significantly higher amount of income. 

Holistiplan indicates the amount of “qualified income”, while also showing how much of that income is taxed at each marginal rate. This allows an advisor to show a client if any of this income was taxed at 0%, which they couldn't necessarily determine by looking just at the tax return.