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Does “income” include capital gains?
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.