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I have the same question!!!!! Married, joint. These are all approximates: Last year we had taxable income of $15700. We paid $2500 in Taxes. This year, 2023, on Line 15, in the final review shows taxable income of $40000. And our taxes due are $700 Federal (and state is $1500 which makes sense). Huh? Now... the difference is the majority of the additional income this year is the sale of stock. I kept the sale within the 0 range. So, is the reason I'm seeing this low federal amount due because even though the total Line 15 shows the stock sales, even though this amount shows the capital gains they are backed out since they were within the 0 threshold? And the program just ignores this line item? Line 7 shows the capital gains and I will be attaching Schedule D as required (it states "if" required but I assume it is as the box is unchecked).
PS The turbo tax link is not the question. We aren't asking about lower refunds.
If your stock sale proceeds qualify for capital gain treatment, then, as you noted, you won't pay regular income tax on those proceeds. If your capital gain rate is zero, you won't pay capital gains tax either. TurboTax isn't ignoring your data - it's treating your data correctly based on your entries. TurboTax will generate the forms and schedules you need for your tax return.
Net capital gains are taxed at different rates depending on overall taxable income, although some or all net capital gains may be taxed at 0%. For taxable years beginning in 2023, the tax rate on most net capital gains 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:
If you have a net capital gain, a lower tax rate may apply to the gain than the tax rate that applies to your ordinary income. The term "net capital gain" means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss for the year. The term "net long-term capital gain" means long-term capital gains reduced by long-term capital losses including any unused long-term capital loss carried over from previous years. The term “net short-term capital loss” means the excess of short-term capital losses (including any unused short-term capital losses carried over from previous years) over short-term capital gains for the year.
See IRS Topic 409 for more information.
Thanks for the explanation. But what is still confusing me is the Line Items. When the 1040 and Schedule D shows up at the IRS, do they look at the Line 15 and see that it shows a taxable income of $40,000, but that is taking into considering the long-term stock sale? And according to the supporting document Schedule D the majority of that taxable income on Line 15, though "taxable" per se, is the stock sale. Hence, when that is taken into consideration, the amount of tax owed is lower because the Schedule D sale 'backs out" that income because it fell under the 0% Long term Married/Joint category? The confusion is the "taxable income" line item AFTER the capital gains line item, but there isn't a place that shows the capital gains isn't included in the calculation of the final tax due. Make sense?
If I understand you correctly, it does seem puzzling at first glance why no-tax stock sale would appear in adjusted gross income (AGI) (line 11). But AGI is not the same as taxable income, despite the flow of the form (1040).
When you get to lines 15 and 16, the tax is NOT calculated using the Tax Table, but a worksheet called the Capital Gains/Qualifying Dividends. On this worksheet, your income is broken apart, and ordinary income is taxed at the ordinary income rates while the stock gain is taxed at the capital gain rate, then these two taxes are added back together.
So it looks all wrong, but comes out right in the end.
I'll have to go into the worksheet and take a look. It should be fairly straighforward because it's all zero. Yes, the "Taxable" and the "Adjusted" makes it all look wonky because I'm used to the AGI being what tax would be calculated on. Here I am, trying to figure out why I'm not sending tons of money to the IRS 🙂 I just don't want to find myself in an "audit" situation due to a software glitch. (I do always get the Audit Defence anyway). Thanks so much for your help. I feel I can finish up now. I really didn't know where to turn.
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