Tentative Tax Calculation

[socal87]

Hi,

I use FEIE to reduce my AGI to ~$22k , $12k in qualified dividends from US stocks and the remaining $9800 is non-excluded foreign income. 

I thought, the tax on my remaining foreign income would be $982 and I could use the non-excluded amount of foreign taxes paid, to reduced this amount.  In addition, my qualified dividends would be taxed at 0%,  since my taxable income is below the $39,375 threshold for long term capital gains.

Instead my taxable income is being taxed at 15% and in the tax summary page I see no credit...

Summary page:

AMT = 0

Total credits = 0

How is TurboTax calculating a tentative tax of ~$1400?

Thanks!

[DavidS127]

Preview a PDF of your tax return to find your tax calculation by selecting Tax Tools and then Print Center from the left menu.  If you are using a Download/CD version of TurboTax, go to Forms mode (icon top right in blue bar).

Your tax calculation should be on the Qualified Dividends and Capital Gains Worksheet (Qual Div/Cap Gn in Forms mode of Download/CD version).  The Foreign Tax Credit calculation will be on Form 1116.  If you don't have a Form 1116, check to see that you completed the Deductions & Credits>>Estimates and Other Taxes Paid>>Foreign Tax section.

[socal87]

I am using the desktop version of TurboTax.

In the Qualified Dividends and Capital Gain Tax Worksheet line 27 corresponding to line 12a in form 1040 is 0.  Line 25 in the worksheet is 0, while line 26 is 958.

I have found the Foreign Earned Income Tax Worksheet where my tentative tax is being calculated. 

line 4 Schedule D $21,028 (x = selected, my capital gains are not being treated completely as long term capital gains since my taxable income is less than the qualified dividend amount and some special rules apply 26 USC § 911)

[BillM223 · Accepted solution]

"In addition, my qualified dividends would be taxed at 0%,  since my taxable income is below the $39,375 threshold for long term capital gains."

The issue is that the capital gains/qualified dividends tax rate is not determined by your taxable income but by your MAGI (Modified Adjusted Gross Income).

Excluded foreign income is added back to taxable income to create the MAGI for capital gains/qualified dividends.

Hence, your qualified dividends are not taxed at 0% but at 15%, because your MAGI is larger than you expect.

[socal87]

Thanks for the response.

After going through my Schedule D I figured this out. What threw me off was lack of excess capital gains calculations in my initial spreadsheet calculations.