First of all, line 42 of schedule D, which is what is improperly calculated, does not take into account NIIT- that is calculated later and then added to the total tax. Second of all, the NIIT is not 10 percent, which is the difference between what the tax on Capital Gains should be and what TurboTax calculates it to be. On my return, the NIIT was $358 not the $2500 in excess taxes.
Doing a quick, common sense calculation in my head, I know that if 100 percent of my taxes are from ordinary dividends and long term Capital Gains, then the amount on line 42 should not be more than 12-18 percent given that the top bracket is 20 percent and it is a graduated rate. And in fact, when I put my information into TaxAct, the rate comes out to 15% and I pay 2,500 less than if I file using TurboTax.
The only way Turbotax can get the number it gets is if it is using the Trust Tax Rates which range from 0-38%.
And, in fact, I did the calculations manually and came out to the exact number they came up with. Thereby proving that Turbotax is using the WRONG rate schedule in its calculations. (See both the Master Tax Guide 2020 and the first paragraph of instructions for Schedule D "What's new" where it explicitly states that Capital Gains in Trusts are to be Taxed at Capital Gains rates- not as ordinary income). And, if you use this program without overriding line 46, schedule D, you will be paying long terms capital gains rates of up to 38%- instead of maxing out at 20%. In my case, we had $25,000 of capital gains tax. TurboTax calculated a tax of $7,000 or 28%. TaxAct calculated the rate at 15%. Clearly, I opted to pay the 100 and file this return with TaxAct rather than pay $2500 extra to the IRS using TurboTax.
