TaxAct not calculating capital gain harvesting properly?

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Superorb
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Joined: Thu Apr 13, 2017 6:33 pm

TaxAct not calculating capital gain harvesting properly?

Postby Superorb » Tue Apr 18, 2017 2:54 pm

According to my return I have an AGI of $68k filing jointly. So anything under $75,300 should keep us in the 15% bracket which would make capital gains under that amount tax free right? But it isn't so. I tried entering in a fictional $1,000 capital gain with a 2 year holding period and it's saying I owe more taxes when this should not change at all. I've tried this with a $10 gain, $100, $500, etc and all of them result in owing more tax. I'm probably doing something wrong.

Has anyone tried TaxAct when dealing with capital gains harvesting?

Dougroseville
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Dougroseville » Tue Apr 18, 2017 3:42 pm

Superorb wrote: Has anyone tried TaxAct when dealing with capital gains harvesting?


I used Taxact this year, but (because of loss carryovers) did not have a Net Long Term Capital Gain. It did, however, apparently correctly calculate a zero rate for my Qualified Dividends (we are MFJ at 15%). In at least some previous years, Taxact correctly calculated zero capital gains rate for 15% rate taxpayers.

The symptoms you describe are indeed scary. I would recommend that you go into the Taxact 'Print Center', then 'Custom', then select the "Federal Schedule D Qualified Dividends and Capital Gain Tax Worksheet" (I am not sure if you can see this if you have not yet paid for the year yet). The details on this form might give you some insight (and possibly be useful if you contact Taxact Support which is probably your next step).

Please do post the resolution when you figure this out.. Good luck.

Superorb
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Superorb » Tue Apr 18, 2017 3:48 pm

I'm 15% MFJ and they did correctly $0 tax my QDs, though I didn't have much. I have already filed and I can still go in and mess with the forms/numbers. I even did a $20k fictional SEP deduction for my wife since she isn't self employed and then did the small $100 capital gain and it still said I owed more. And what's crazy is that I actually had a capital loss of about $270 for 2016 so the loss should have offset the smaller gain I'd think.

redingt3
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Re: TaxAct not calculating capital gain harvesting properly?

Postby redingt3 » Tue Apr 18, 2017 4:43 pm

Superorb - It sounds like you might be checking the "ordinary" box in box 2 of the 1099-B. This is new on the 1099-B this year. When the "ordinary" box is checked, the gain is treated as ordinary interest income instead of capital gain income. If not that, shoot an email to support@taxact.com.

Superorb
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Superorb » Tue Apr 18, 2017 5:29 pm

redingt3 wrote:Superorb - It sounds like you might be checking the "ordinary" box in box 2 of the 1099-B. This is new on the 1099-B this year. When the "ordinary" box is checked, the gain is treated as ordinary interest income instead of capital gain income. If not that, shoot an email to support@taxact.com.


Nope, I thought that was the case too and checked it and tax owed went way up.

harryw
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Location: California

Re: TaxAct not calculating capital gain harvesting properly?

Postby harryw » Tue Apr 18, 2017 6:45 pm

Unless I have a severe misunderstanding of the way taxes are calculated you do see an increase of your 'regular' taxes anytime there are LT capital gains - they always get added to your taxable income. What you don't pay is the capital gains tax on top of that as long as you're in the 15% bracket.

edit: I worded that awkwardly. What I meant was any calculation that works on the AGI or taxable income will take the capital gains into account.

If you're working with the downloaded version of TaxAct then there should be a message popping up during the Check For Errors run informing you that you qualified for 0% LT cap gains tax.

kaneohe
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Re: TaxAct not calculating capital gain harvesting properly?

Postby kaneohe » Tue Apr 18, 2017 7:13 pm

harryw wrote:Unless I have a severe misunderstanding of the way taxes are calculated you do see an increase of your 'regular' taxes anytime there are LT capital gains - they always get added to your taxable income. What you don't pay is the capital gains tax on top of that as long as you're in the 15% bracket.

edit: I worded that awkwardly. What I meant was any calculation that works on the AGI or taxable income will take the capital gains into account.

..................................................


The bolded part is the awkward part..............LTCG do add to AGI and taxable income ........but not to taxes if in 15% bracket.

aristotelian
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Re: TaxAct not calculating capital gain harvesting properly?

Postby aristotelian » Tue Apr 18, 2017 7:18 pm

Maybe try Freetaxusa (which is free, obviously) and see if you get the same result?

robebibb
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Re: TaxAct not calculating capital gain harvesting properly?

Postby robebibb » Tue Apr 18, 2017 7:28 pm

Check to see if you are hitting the child tax credit phase out. This happened to me last year and was a bit disappointing.

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BL
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Re: TaxAct not calculating capital gain harvesting properly?

Postby BL » Tue Apr 18, 2017 7:51 pm

It could affect taxable SS amounts if you are collecting SS.

Superorb
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Superorb » Tue Apr 18, 2017 8:45 pm

robebibb wrote:Check to see if you are hitting the child tax credit phase out. This happened to me last year and was a bit disappointing.


We have no children.

BL wrote:It could affect taxable SS amounts if you are collecting SS.


We're in our 30s so no SS distributions.

DSInvestor
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Re: TaxAct not calculating capital gain harvesting properly?

Postby DSInvestor » Tue Apr 18, 2017 9:22 pm

Are you getting ACA premium tax credit? Higher AGI with capital gain could result in reduction or loss of ACA premium tax credit.

BTW, the top of the 15% tax bracket is at Taxable Income of $75,300. Taxable Income = AGI - deductions - exemptions. If taking the std deduction and 2 exemptions, you can have AGI of 95K and still stay in the 15% bracket.

What entries are you making in the 1099B screen?

Wagnerjb
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Wagnerjb » Wed Apr 19, 2017 8:10 am

Superorb wrote:I'm 15% MFJ and they did correctly $0 tax my QDs, though I didn't have much. I have already filed and I can still go in and mess with the forms/numbers. I even did a $20k fictional SEP deduction for my wife since she isn't self employed and then did the small $100 capital gain and it still said I owed more. And what's crazy is that I actually had a capital loss of about $270 for 2016 so the loss should have offset the smaller gain I'd think.


I believe your confusion arises from the capital loss on the original return. The capital loss is serving to reduce ordinary income and lower your taxes. When you add a capital gain, the loss disappears and you no longer are reducing ordinary income. Your (net) capital gain is of course taxed at 0% but you are no longer getting the benefit of the capital loss serving to offset ordinary income.

So the difference in the bottom line should be the elimination of the benefit of the tax loss.

Best wishes.
Andy

Superorb
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Superorb » Wed Apr 19, 2017 10:14 am

Ok, so I added a gain to offset the loss. Then I added a $100 LT gain and tax went up $15 so a 15% increase which would be fine if I was in the 25% bracket. Here's a screenshot:

Image

Image

Image

Chip
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Chip » Wed Apr 19, 2017 1:33 pm

Okay, now give us the same screen shot WITHOUT the $100 gain. And the Schedule D tax worksheets for each scenario.

Superorb
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Superorb » Wed Apr 19, 2017 3:00 pm

Ok, here's with $0 gain/loss. I'm not including the 1099-B since I have a zillion entries for LendingClub and Betterment.

Image

Image

Chip
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Chip » Wed Apr 19, 2017 3:11 pm

Thanks. But we need to see the Schedule D tax worksheets for each scenario to understand why it is happening.

Superorb
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Superorb » Wed Apr 19, 2017 3:18 pm

Chip wrote:Thanks. But we need to see the Schedule D tax worksheets for each scenario to understand why it is happening.


The only thing that changed is that I added a dummy $268 gain to cancel out the $268 loss I officially have. Took pics while $0 gain/loss. Then added dummy $100 LT gain and took pics, tax went up by $15.

Chip
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Chip » Wed Apr 19, 2017 3:20 pm

I hear what you're saying. But if you want to know the answer as to why it happened we need to see both Schedule D tax worksheets. Not Schedule D itself, but the tax worksheets where the tax rates for LTCG and qualified dividends come into play.

Superorb
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Superorb » Wed Apr 19, 2017 3:26 pm

Chip wrote:I hear what you're saying. But if you want to know the answer as to why it happened we need to see both Schedule D tax worksheets. Not Schedule D itself, but the tax worksheets where the tax rates for LTCG and qualified dividends come into play.


Do you mean the schedule D tax form? It shows a $108 ST gain and a $376 LT loss. So Line 21 is -268. I actually prefer the tax forms to the online tax summaries and lists.

FactualFran
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Re: TaxAct not calculating capital gain harvesting properly?

Postby FactualFran » Wed Apr 19, 2017 3:39 pm

Superorb wrote:Do you mean the schedule D tax form? It shows a $108 ST gain and a $376 LT loss. So Line 21 is -268. I actually prefer the tax forms to the online tax summaries and lists.

The screen shots you posed indicated capital gains of $0 and $100, not a -$268 under one scenario and some other amount under the other scenario. Take another look at the reply by Wagnerjb.

It look as if you have a capital loss with both scenarios, with the capital loss being $100 different between the scenarios. The capital loss decreases the amount of ordinary income. The scenario with $100 less of a capital loss results in $100 more of income taxable at the ordinary income tax rate. For someone with a 15% ordinary income tax rate, the scenario with $100 less of a capital loss has $15 more in income tax.

Chip
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Chip » Wed Apr 19, 2017 3:41 pm

Superorb wrote:Do you mean the schedule D tax form? It shows a $108 ST gain and a $376 LT loss. So Line 21 is -268. I actually prefer the tax forms to the online tax summaries and lists.


No, I mean this worksheet. TaxAct should have it available somewhere, all filled in with your numbers. We need to see it for both scenarios.

But I think Wagnerjb and FactualFran have the answer.

Superorb
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Superorb » Wed Apr 19, 2017 3:48 pm

FactualFran wrote:
Superorb wrote:Do you mean the schedule D tax form? It shows a $108 ST gain and a $376 LT loss. So Line 21 is -268. I actually prefer the tax forms to the online tax summaries and lists.

The screen shots you posed indicated capital gains of $0 and $100, not a -$268 under one scenario and some other amount under the other scenario. Take another look at the reply by Wagnerjb.

It look as if you have a capital loss with both scenarios, with the capital loss being $100 different between the scenarios. The capital loss decreases the amount of ordinary income. The scenario with $100 less of a capital loss results in $100 more of income taxable at the ordinary income tax rate. For someone with a 15% ordinary income tax rate, the scenario with $100 less of a capital loss has $15 more in income tax.



Ok, I think I'm confusing everyone, probably including myself. -$268 is my actual loss. The $0/$100 were there to show what it looked like not counting my $268 loss. I had 3 scenarios.

Chip
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Chip » Wed Apr 19, 2017 5:10 pm

Another possibility. Given your $108 ST gain and -268 LT loss, if you add $268 of LT gain, it will net against your LT loss, leaving you with a taxable ST gain of $108. Which is taxed at ordinary income rates, in your case 15%.

Superorb
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Superorb » Wed Apr 19, 2017 5:27 pm

I've given up. Next year I'll do a simple return to see if they calculate LTCGs correctly.

Thanks everyone.

Chip
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Chip » Thu Apr 20, 2017 4:34 am

Superorb wrote:I've given up. Next year I'll do a simple return to see if they calculate LTCGs correctly.

Thanks everyone.


Okay. But I think we know exactly what happened. TaxAct is calculating your tax correctly. The problem is that the scenario you created doesn't do what you think it does.

1. Your original return had $108 in ST gains and -376 in LT losses. Net of -268 in losses on Form 1040.

2. You added $268 in LT gains to get to zero losses/gains on Form 1040. But "behind the scenes" on Sch D, you netted those LT gains with some of your LT losses, then applied the resulting net LT loss to your ST gains. Sch D showed $108 ST gains, -108 LT losses, for net gain of zero.

3. You then added $100 more of LT gains. But instead of having the effect you thought, it was netted against your remaining LT losses on Sch D, leaving you with $108 of ST gains, -8 of LT losses, for a net ST gain of $100. This short term gain is taxed at your ordinary income rate of 15%. TaxAct is correct.

If you want to prove it to yourself, add $108 in short term losses to your original return and $376 in LT gains. You'll be at your zero cap gain scenario on Form 1040 again. Now add $100 in LT cap gains. Your tax won't change.

Superorb
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Superorb » Thu Apr 20, 2017 10:00 am

Yup, you are exactly right. So for 2017 how can I make sure that I don't run into this again and I can harvest gains? The loss/gain was from LendingClub or Betterment, and I can't control and of those robo trades. I've since closed my Betterment account and have been winding down my LendingClub account for over a year now, but I still have notes that won't be paid off till 2018.

Thanks so much for yours and everyone's help.

Chip
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Chip » Thu Apr 20, 2017 11:39 am

Superorb wrote:Yup, you are exactly right. So for 2017 how can I make sure that I don't run into this again and I can harvest gains? The loss/gain was from LendingClub or Betterment, and I can't control and of those robo trades. I've since closed my Betterment account and have been winding down my LendingClub account for over a year now, but I still have notes that won't be paid off till 2018.

Thanks so much for yours and everyone's help.


You just need to avoid short term gains. Where did the short term gains come from? I thought Betterment just harvested losses, not gains, but I have no direct experience.

Superorb
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Re: TaxAct not calculating capital gain harvesting properly?

Postby Superorb » Thu Apr 20, 2017 11:45 am

Chip wrote:You just need to avoid short term gains. Where did the short term gains come from? I thought Betterment just harvested losses, not gains, but I have no direct experience.


I have no idea. I'll have to go through and try to see which sale was ST. I always check buy date to make sure it's more than a year, but maybe I messed up somewhere. Will report back.


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