Capital Gains - I have taxable income, but owe no tax?

[Don222]

Form 1040 line 15 (taxable income) has value of $3,806 - Turbo lists Tax as 0 on line 16.

I have a Taxable Income of $3,806 but owe no tax.  How is that possible?

Do I even need to file with IRS?

Thanks

[DawnC]

Is your taxable income all from long-term gains?  If you held on to your stock for more than one year, it’ll be taxed at the long-term capital gains tax rates of 0%, 15% or 20%, depending on your income.   Look at your Form 1040/1040SR Wks - worksheet, under Line 15, Tax Smart Worksheet, what line is the X on?   That is where you can see how the $0 was determined.

Do I need to file a federal tax return?  You probably do need to file, but check this chart and the list of situations that require filing.   The numbers are gross income, not taxable income.  

[Don222]

I had capital loss on my return, but I still don't understand how a taxable income has no taxes.

My standard deduction of $15,700 is less than my total income (line 9).

I trust TurboTax but I would like to understand why no taxes when tax tables indicate I would owe taxes.

thanks

[DawnC · Accepted solution]

Net capital gains are taxed at different rates depending on overall taxable income, although some or all net capital gain may be taxed at 0%.   For taxable years beginning in 2023, the tax rate on most net capital gain is no higher than 15% for most individuals.   A capital gains rate of 0% applies if your taxable income is less than or equal to:

• $44,625 for single and married filing separately;
• $89,250 for married filing jointly and qualifying surviving spouse; and
• $59,750 for head of household.   

Did you check out the Tax Smart Worksheet on your Form 1040 worksheet?  That will show how the $0 was determined.   It is between Line 15 and 16 on your Form 1040 worksheet.  

[Don222]

OK - I think I found the issue with your help.

I had a large value of Qualified Dividends that exceeded my line 15 Taxable Income.

Turbotax then determined (based on the worksheet) my tax liability will be 0 (tax table was properly ignored).

The Tax Smart worksheet had the check mark next to line 4 (Qualified Dividends and Captial Gains Worksheet).

I will still file the return.

Thanks