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?
Did your capital gain when added to your other income put you in a higher tax bracket?
No, when added to my other income I'm still at less than $40,000.
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.
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.
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.
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.
@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.
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.
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.
Check this......Does the tax on line 16 match the Tax Table? Or is it less?
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.
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!
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.
The problem is line 9 is NOT 0. Its adding the tax on the capital gain even though wages, dividends, interest, etc are under $40,000. Over ride? Tempted, but not feeling great about doing that. I have the downloaded version.
Line 9 is a calculated line.
if you override it to zero, IRS computers will immediately note a "miscalculation" and restore the original value.
Problem still not solved and now wondering how many times TurboTax had people who were on small fixed incomes pay capital gains tax even though their income was under the limit - $44K for singles. Shame on them because these are the struggling ones. I've gone over the worksheets and no where do I find a form that says the total income minus the capital gains less then the $44k limit! No matter where I look it still comes out that the income tax has to be paid on the capital gains even though all other income is under the $44k. In this particular case it is a substantial amount for the person, not a couple of dollars. Will not use this software in future years.
PS when I go to file the taxes it still says owing tax amount including the capital gains tax and ignoring that the income was under $44k. So even though the software will include the info of capital gains on the 1040 it does not follow IRS rule that says if income is under $44k, capital gains are taxed at $0.
Have you filled out the worksheet manually to check? I haven't seen any other posts about problems with this.
IRS Qualified Dividends and Capital Gain Tax Worksheet—Line 16 on 1040 instructions page 37
https://www.irs.gov/pub/irs-pdf/i1040gi.pdf
And you might need IRS Tax Table page 15 to calculate the tax and to compare to Turbo Tax. That isn't shown in Turbo Tax.
https://www.irs.gov/pub/irs-pdf/i1040tt.pdf
Yes, decided to try it manually and it makes better sense and did not include the tax on the capital gain. In comparing the manual to TurboTax and I found that the worksheet is still calculating tax on the capital gain. Not sure why. Did look at the data source and which was a general overview of behind the scenes calculations and not a straight forward sperate worksheet with check boxes and data sources as to why the software did add tax to the capital gain despite the rule of $0 tax liability for income under $44k. Thank you for your help.
Income taxed at long-term capital gains rates is not taxed independently of your other income. The income taxable at LTCG rates sits on top of all of your income that is taxed at ordinary income tax rates. This means that the LTCG tax bracket that applies to a particular dollar of LTCG will be affected by how much ordinary taxable income your have. If any of your income taxed at LTCG rates is being taxed at a rate above 0% on your 2023 tax return, it means that you have more than $44,625 of taxable income on Form 1040 line 15.
There are a few instances where long-term gains are taxed differently. Do any of the long-term gains reported on your return include:
For more details, please see IRS Tax Topic 409.
my question in this situation: assuming I'm below the income limit for a given year how much capital gains can i take at 0%? I can't find any info on irs site regarding a limit. I find it hard to believe that I could take $100,000 in capital gains and pay no tax.
The Schedule D Tax Worksheet or the Qualified Dividends and Capital Gain Tax Worksheet were likely used to compute your Federal tax.
Review whichever worksheet was used to compute your Federal tax.
In the online versions, you may view or print at Tax Tools / Print Center / Print, save or preview this year's return / Include government and TurboTax worksheets after you have paid for the software.
In the Desktop versions, one can look at the tax return by clicking FORMS, or by viewing the PDF through the Print Center.