Why Were All Capitals Gains Included In Total Income?

[BIGxRED]

I am taking the standard deduction and I sold ESPP shares in 2019. According to this article , the bargain element gets taxed according to my income tax bracket. Whatever capital gain I make on top of that, it gets taxed as either a short or long term sale (income tax bracket or capital gains tax, respectively). I have one sale that was a qualifying disposition, so the bargain element is less and the capital gains tax is lower for me as well.

After I finished my federal tax returns, TurboTax simply lumped the total capitals gains sum into my total income.Why did it do that? I thought it would work out differently, since I should be getting taxed at a lower rate for the one sale that is a qualifying disposition.

[DavidD66 · Accepted solution]

Do you have an amount on line 6 of Form 1040?  If so, that amount is being taxed at the lower capital gains tax rate.  Even so, that amount will be included with other income for amounts such as Adjusted Gross Income and Taxable Income.  If you don't have an amount on line 6 of Form 1040 you should redo your ESPP sale, as it's not showing the Capital Gain.

[bkz123]

It seems Capital Gains are taxed twice?   First at a capital gains rate (e.g. 15%) and then again as part of your income (e.g., 35%)....  

[AnnetteB6 · Accepted solution]

That is not quite correct.  When capital gains are included as part of your income, the total tax calculation using the gains added to other income is compared to the tax calculation using the graduated capital gains rates and the lesser tax amount is used on your return.

The worksheet used to calculate your taxes when taking capital gains into account is found in the IRS Instructions for Form 1040.  It is called the Qualified Dividends and Capital Gains Tax Worksheet. 

You can find it on page 33 of the PDF document at this link:  2019 Form 1040 Instructions

@bkz123