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does income include capital gains?
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the $100,000 is taxed separately as "ordinary income". the $350,000 is taxed at long-term capital gains of 15%. capital gains is not taxed at 20% until $415,050. even though $100,000 + 350,000 = $450,000, only $350,000 can be taxed at capital gains. the total ordinary income tax burden will be $31,986 if single, in california. caveat: by creating a holdings corporation (c-corp), you can section 351 that $100,000 into the c-corp for tax deferment, which won't be taxed until you take money from the corporation. since you will hold 100% of the voting stock, all distributions will be considered pro rata. additionally, you can issue yourself a dividend under the rules of 26 usc §§243-246 (a greather-than-80% shareholder who receives a dividend can write-off 100% of said dividend). as long as that dividend doesn't trigger §§1.243-246 of the regulations by keeping the distribution just under 10% of e&p i.e. $10,000. wages are deductible against basis so pay yourself $35,000 and keep $55,000 in the corporation and you can decrease the total liabilities down to $22,000 from $31,000, which includes the ca franchise tax. you don't have to pay yourself any money out a corporation to use the money.
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