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TurboTax and LT Capital Gains
Old 04-02-2024, 07:45 AM   #1
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TurboTax and LT Capital Gains

I made a copy of my 2023 return, in TurboTax. And did the same for my girlfriend. We are both single and both of our taxable incomes are well below the 20% threshold for LT capital gains. In each of the copies, I increased the proceeds from one long-term stock sale by $100,000 to see the impact on taxes. I expected the impact to be $15,000. It was not. It was $18,956 in one case and $18,920 in the other.

So next I tried increasing the proceeds of that same long-term stock sale by only $50,000, and the tax increased by $9,556 and $9,239, respectively.

Can someone shed some light on why it seems that TurboTax is taxing these long-term capital gains at roughly 19% and not 15%

I'm thinking that the additional LT Capital Gains income is throwing some other element of our taxes into a higher bracket.... is that right? Which element(s) would that be

Thanks!
mjs
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Old 04-02-2024, 07:53 AM   #2
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If you print the return with all worksheets, you'll find the one that's used to figure the tax, and you can easily compare the before and after versions to see what's different. I can't tell from your description whether your tax is figured on the "Qualified Dividends and Capital Gain Tax Worksheet" or "Schedule D Tax Worksheet", but it should be one or the other.
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Old 04-02-2024, 08:00 AM   #3
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Is it pushing some more of your social security income into being taxed?

Is there an underpayment penalty? I think this would show up on line 38.

Are you certain you made it a LTCG?

If nothing else was affected by the additional caps gains, you should only see 1040 lines 7, 9, 11, and 15 affected on the first page. Did something else change? Anything on page 2 besides 16, 18, 22, 24 and 34 or 37?

Look at the Qualified Dividend and Capital Gain worksheet, which is where your tax is calculated, for each addition of income. This is where your tax is calculated and you can see how much is taxed at 0%, 15% and 20%.

Oh, are you getting an ACA subsidy? This would definitely be impacted by more income. I don't think IRMAA shows up on 1040, does it?
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Old 04-02-2024, 08:08 AM   #4
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No IRMAA does not show up on 1040.

It could be the Net Investment Income tax which tacks on another 3.8% tax on cap gains when total adjusted income exceeds $200K for single filer.

Note that NIIT is applied against the adjusted gross income, not against the taxable income, so it’s before deductions including standard deduction.
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Old 04-02-2024, 08:13 AM   #5
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Thanks for the quick feedback; I'll investigate each of these. I think the most likely candidate is the NIIT since that kicks in at "just" $200K for a single filer. When I took away some other income, the additional tax rate did drop to closer to 15%. Also, looking at the initial results, the tax rate was about 18.8%, which would/could be 15% + 3.8%.

Thanks all.
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Old 04-02-2024, 08:14 AM   #6
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Cathy63 has the answer. Essentially some any dividend moved out of zero tax bracket into your ordinary income tax bracket. Study the worksheet.
NIIT could also comes into play at higher income levels.
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