I have two clients. One had only $750,000 of LT gains. The other had the same LT gains but $850,000 worth of W-2 incomeWhere can I find inside of IRS.gov how the taxes

Forum|Forum|4 years ago
April 14, 2022
1 reply
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The first client had his LT gain tax in a step function that went from zero % to 20%.
The second client had his whole gains taxed at 20%.
Why did the first step through the different tax rates while the second went straight to the top.
And where can I find the explanation at irs.gov. I searched and all I got was the same simplistic step function that all the rest of the Internet has.
Thanks in advance, Christopher

ProSeries Professional

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Best answer by rbynaker

I went to the Fox Mulder school of tax preparation. Trust No One.

That said, there have been no reports of ProSeries calculating capital gains taxes incorrectly this year.

rbynaker

Level 13

You have to look at the Schedule D tax worksheet. At the very end of the instructions:

https://www.irs.gov/pub/irs-pdf/i1040sd.pdf

4/14 might not be the best day to learn this, it's pretty convoluted. The first time I went through it I jotted notes down next to the lines on the worksheet to say what that number means. I actually just went through one for a sale of rental property with 1250 gains. I followed the QD/LTCG amounts through to see how they got taxed. Then the 1250 gain at the max 25% rate (client has $700K+ of income). Then everything else is taxed at ordinary rates. The worksheet adds everything up and compares it to regular tax to see which is better.

I don't deal with 1250 much so my normal spreadsheet doesn't account for it. But I was able to take the 1250 gain x (37% - 25%) to add the 1250 "savings" to the QD/LTCG "savings" and use that to reduce the regular tax. Worked like a charm.