@LMurray1 wrote:
Here is where the differences appear. Schedule 1040, lines 16 and 18 have a much higher number in the gambling case than the non-gambling case. That traces back to differences on Schedule 2 line 12, which traces back to Form 8960. On Form 8960, the difference appears in 2 places. Line 9b, which is slightly higher for the nongambling case, and Line 13, which is dramatically higher for the gambling case. In turn, Line 17 on this form is significantly higher for the gambling case.
The key appears to be Line 13 on Form 8960. For that Form, no more tracing back - Turbotax simply says "see instructions."
Something has been created that ends up not canceling out gambling wins and losses. Is this a software issue?
So you're getting stung by the net investment tax. Here are the instructions for form 8960.
https://www.irs.gov/pub/irs-pdf/i8960.pdf
Basically, the net investment tax was created to pay for the Affordable Care Act ("Obamacare") by imposing an extra tax on investment income earned by "rich" people. Looking only at form 8960 lines 12-17:
Line 12 is your net investment income.
Line 13-15 compares your modified adjusted gross income (MAGI) with the income limit for the tax, which is $250,000 for MFJ, $125,000 for MFS and $200,000 for single.
Line 16 is your investment income actually subject to the NIT.
If your MAGI is less than the threshold that applies to you, then line 16 will be zero and your investments won't be taxed. If your MAGI is more than your threshold, then your investments start to get taxed. The more your income goes up, the more of your investments get taxed.
Your investment income subject to the tax (line 16) will never be more than your total investment income (line 12), but the higher your MAGI, the bigger line 16 will get, until it maxes out at being equal to line 12.
MAGI is computed before itemized deductions (its your gross income before deductions and not your taxable income after deductions) so the gambling winnings are increasing your MAGI (line 13) and therefore increasing the amount of your investment income subject to the NIT (line 16).
I suspect this situation does not affect too many people, because it requires a combination of circumstances (gross income in a certain range, gambling income in a certain range, and substantial investment income) but your tax is being calculated correctly. Check the instructions and do the math on lines 12-17 yourself.
(The line 9b adjustment is explained on one of the worksheets in the instructions, as well.)
Hope this helps.
