Why does Turbotax Business, Form 1041 Schedule D calculate Long Term Capital gains rate at 28% when the maximum Long Term capital gains rate is 20%?

Forum|Forum|5 years ago
March 8, 2021
1 reply
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The IRS instructions for Schedule D state that "Capital Gains and qualified dividends: For tax year 2020, the 20 percent maximum capital gain rate applies to estates and trusts with income above $13, 150" The 0 percent and 15% rates continue to apply to certain threshold amounts. Therefore, if 100 percent of my income is from qualified dividends and capital gains, my overall tax rate should be between 0 and 20 percent. However, Turbotax calculates my tax at 28 percent (before NIIT). It is clearly using Trust regular income rates for the calculation where the maximum rate is 37 percent (I calculated manually to confirm). So, how do I file when the underlying calculation within the code of the Turbotax program is clearly wrong?

TurboTax Online

Anonymous_

Level 15

Have you looked at Schedule G on your 1041?

Recall that the tax rate on collectibles is 28%.

Lindagmcd

Level 3

I looked through schedule G (about 100 times b/c I did not believe that TT could have such an egregious error). I read all of the IRS materials, including instructions for 1041 Instructions for Schedule D. I consulted the 2020 Master Tax Guide and a professional tax CPA (all of which clearly state that Long Term Capital Gains Trust Returns are taxed at the same Capital Gains rates as individuals- with the exception of collectibles). I did not sell collectibles. This was a straight up long term publicly traded stock gain.

The problem is that Turbo Tax uses the wrong tax rates (they use the Trust tax rates instead of Capital Gains rates in their calculation- so they are using 37 percent instead of 20 percent in their calculation). To both prove that the problem is a TurboTax problem and to solve the problem, I used TaxAct, which has the correct rates programed into their returns. My taxes were $2,500 lower as a result. Moral of the Story- DO NOT USE TURBOTAX if you have UNDISTRIBUTED Long Term CAPITAL GAINs. It works fine if all your capital gains are distributed and, therefore, flow directly through to the beneficiary (because the TurboTax 1040 Schedule Ds are correct- it is only the Schedule D from form 1041 that has the faulty calculations).