Form 1041 Qualified Dividends Tax

[Dave-estate]

Hello,

My question is around the use of the Qualified Dividends Tax Worksheet used to complete Schedule G, Part 1, Line 1a for the Form 1041.

For an estate, unclear how the qualified dividends are being handled.  For simplicity, lets say I have $3,000 of dividends of which $2,800 are qualified, no other income, capital gains, etc.  I would have expected the $2,800 not to be taxed and the $200 to be tax using 2023 tax rate schedule provided in the instruction for form 1041.  But it appears tax $2,600 is taxed at 0%, $200 is taxed at 15% and $200 is taxed at the 2023 tax rate schedule provide in the instructions

Thanks in advance,

Dave

[Anonymous_]

Can you post a screenshot of your Qualified Dividends Tax Worksheet?

Note that an estate is going to have a $600 exemption if there are no distributions. On a test return using your figures, the program shows taxable income of $2,400 and a total tax of $0.

[Dave-estate]

Hello, I have cut using windows snip and sketch, but cannot determine how to paste/post it in the reply.

As you can guess...first time at this

[Anonymous_]

OK, I'll post the one I have from a test return (yours should be similar).

[Dave-estate]

In my example ,  I have 3,000 on line 1

[Anonymous_]

Where and how did you enter these figures in the program and is this an estate with no distributions?

Estates get a $600 exemption on Line 21 which is why $2,400 appears on Line 23.

[Dave-estate]

I entered the ordinary dividends of 3000 on form 1041 line 2a.  I entered the qualified dividends of 2800 on form 1041 line 2b(2).  No distributions.  

[Anonymous_]

Are you using TurboTax Business? Did you enter the dividend figures in that section of the program?

[Dave-estate]

I am using 2023 TurboTax Business (windows desktop).   I entered the dividend numbers thru the dividend income for 1099-DIV. 

[Anonymous_]

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@Dave-estate wrote:

I am using 2023 TurboTax Business (windows desktop).   I entered the dividend numbers thru the dividend income for 1099-DIV. 

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Same here and the screenshot I posted was the result I got with your numbers. We're doing something differently.

[Dave-estate]

Ok, well, thanks for taking the time to help  

The more I review this, I'm thinking TurboTax is doing what the IRS form is asking. My lack of understanding may be around how the qualified dividends should be handle on the 1041. If I were to just fill out these forms by hand using 3,000 for the amount from form 1041, line 23 and 2,800 for the amount from form 1041, line 2b(2) , I would see that line 8 on the qualified dividends tax worksheet would only tax 2,600 at 0%. Don't understand why it would tax 2,800 (my entire qualified dividend) at 0%

[Dave-estate]

I deleted the entire return, started new.  Entered 3000 as ordinary income and 2800 as qualified dividends, no beneficiary, no distribution.  I got the 600 exemption and the Qualified Dividends Tax Worksheet was the same as the one you posted.   Went  back and updated the 3000 to 3600.    Got the 600 exemption and now my Qualified Dividends Tax Worksheet on line 8 now shows 2600 as the amount taxed at 0%.   My question is , why wouldn't that still be 2800? 

[Anonymous_]

Subtracting the exemption of $600 from $3,600 = $3,000.

Then subtracting $2,800 from $3,000 = $200

and $2,800 less $200 = $2,600

[Dave-estate]

Yyes but why?  Don't I still have 2800 in qualified distributions?  This is taking 200 of that 2800 and taxing it at 15% and reducing the amount subject to 0% tax rate down to 2600.   I don't really think the 600 exemption is part of the issue.  The starting point for the Qualified Dividend Tax Worksheet if the amount from form 1041, line 23, which would take in to consideration an exemption.  Must be missing something about how the qualified dividends are taxed.  Can't see why adding additional income would cause the level of the 0% tax (2800) to be reduced.   

[Anonymous_]

Qualified dividends are taxed at the same rate as capital gains; 0%. 15%, and 20%.

As a result, Part V of Schedule D or the Schedule D Tax Worksheet is used to calculate the tax, not the regular tax rate schedules. 

See https://www.irs.gov/instructions/i1041#en_US_2022_publink1000286212 (this is applicable to the 2022 tax year).