Why are my long-term capital gains being taxed when my total earned income is less than $40,000? Seems like a glitch in Turbotax software!

[jessikaob]

I've done my research. My taxable income is less than $40,000, which means that my capital gains should fall into the 0% tax category. And yet, Turbotax is trying to take thousands of dollars from me. What's the glitch? Is there some way I can fix it before I go pay a different company to prepare my taxes?

[Bsch4477]

Did your capital gain when added to your other income put you in a higher tax bracket?

[jessikaob]

No, when added to my other income I'm still at less than $40,000.

[VolvoGirl]

Check out the capital gain tax worksheet.

If you have capital gains or qualified dividends the tax is not taken from the tax table but is calculated separately from schedule D.  The tax will be calculated on the Qualified Dividends and Capital Gain Tax Worksheet.  It does not get filed with your return.

In the online version you need to save your return as a pdf file and include all worksheets to see it.

For the Desktop version you can switch to Forms Mode and open the worksheet to see it.  Click Forms in the upper right (upper left for Mac) and look through the list and open the Qualified Dividends and Capital Gain Tax Worksheet.

[pqm5]

The same thing happened to me. My taxable income was around $17,000 and I had $425 in capital gains, which was included in the calculation of my taxes for last year. I just discovered that capital gains are subject to a 0% tax rate when taxable income is less than $40,000, and every year capital gains have been included as income. So, under these circumstances, I would not consider it to be a glitch in the software. I think it may be time to look at other tax software.

[fanfare]

prepare with other software and if you get better results you can amend.

That probably won't happen.

There are tax outfits on internet that will do your current and/or past year return over for you for no charge.

@pqm5 

[Critter-3]

That $425 may be tax free however you have other taxable income ...  

Check out the capital gain tax worksheet.

If you have capital gains or qualified dividends the tax is not taken from the tax table but is calculated separately from schedule D.  The tax will be calculated on the Qualified Dividends and Capital Gain Tax Worksheet.  It does not get filed with your return.

In the online version you need to save your return as a pdf file and include all worksheets to see it.

For the Desktop version you can switch to Forms Mode and open the worksheet to see it.  Click Forms in the upper right (upper left for Mac) and look through the list and open the Qualified Dividends and Capital Gain Tax Worksheet.

[VolvoGirl]

@pqm5   Yes it is included in your income but that doesn't mean it's taxable.

Even though it shows up as income on the first page,  if you have capital gains or qualified dividends the tax is not taken from the tax table but is calculated separately from schedule D.  The tax will be calculated on the Qualified Dividends and Capital Gain Tax Worksheet.  It does not get filed with your return.  In the online version you need to save your return as a pdf file and include all worksheets to see it.

For the Desktop version you can switch to Forms Mode and open the worksheet to see it.  Click Forms in the upper right (upper left for Mac) and look through the list and open the Qualified Dividends and Capital Gain Tax Worksheet.

[pqm5]

On my 2021 return, capital gains tax appeared as number 7 on the 1040SR, it was included, right under Social Security Benefits, IRA distributions, qualified and ordinary dividends, etc. It was all added up to establish the adjusted gross income after which the standard deduction was subtracted to end up with the taxable income. No way of missing it. Granted $425 is no big deal, but then this has been happening for the last decade or more, and that adds up.  

[VolvoGirl]

Read the posts above again.  There are like 7 different ways to figure the tax on line 16.  It is not just based on line 15 taxable income.

[VolvoGirl]

Check this......Does the tax on line 16 match the Tax Table?  Or is it less?

https://www.irs.gov/pub/irs-pdf/i1040tt.pdf

[pqm5]

Interesting, no it does not match, it is less. One can easily misunderstand because the return does not make it obvious.  Thanks for clarifying that for me. 

[SandySocks]

Ok, so IRS says no capital gains tax if wages plus dividends and interest are under $44,000.  Everyone complaining about TurboTax clitch that adds the capital gains as income even though the person is earning under $44K.  But NO ONE has answered how to fix this!!!!!  I may have to stop using TurboTax if it can't even follow IRS rules.  Does anyone know exactly what you input on the exact form for 2023 federal tax to get this right?

Called Turbo Tax and they wanted me to pay and extra $ to get a tax advisor!!ridiculous!

[SandySocks]

Then what?   Over ride the form?  

[RachelW33]

Your long-term capital gains will be reported on Line 7 of your Form 1040, even if they are taxed at 0%.  When you have capital gains and qualified dividends, your tax is calculated on the Qualified Dividends and Capital Gain Tax Worksheet.  On line 9, it will show the amount taxed at 0%.  

If you are using the cd/download version of TurboTax, you can view this worksheet in Forms Mode.  If you are using TurboTax Online, you will need to save your return as a pdf file and include all worksheets to view it.

@SandySocks