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 income Where can I find inside of IRS.gov how the taxes

[chapguy19]

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

[rbynaker]

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.

[chapguy19]

Should I just trust ProSeries here and have confidence that it was done correctly?

Thanks,

C

[rbynaker · Accepted solution]

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.