State Income Tax vs Capital Gains TurboTax

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Topic Author
era00100
Posts: 31
Joined: Mon Feb 18, 2019 12:47 am

State Income Tax vs Capital Gains TurboTax

Post by era00100 » Sun Jun 28, 2020 3:44 pm

Hello,

I was going over my 2019 taxes (filed a while ago), and I noticed something that seems strange about my State Income Tax.

Info: Connecticut Resident, Married Filing Jointly, Family AGI about 150k

My family AGI for 2019 was about 150k. This included salary but also a large portion of this was capital gains from a sale a stock I had purchased in 2011 (about 40k), and some dividends (4k).

When I look at my filed taxes, specifically at the Connecticut portion, the only information listed in that entire section is the AGI (no breakdown by info "type", cap gains, etc.). From what I read, Connecticut taxes income, capital gains, and dividends differently.

I was thinking its possible this was all somehow pre-calculated behind the scenes by TurboTax, but if I use a simple tool like this: https://www.dir.ct.gov/drs/Taxcalsched/TCS2019.htm, it calculates what I owed as almost exactly what TurboTax did (this tool does not break out income by Income/Cap Gains/Dividends).

Has anyone here seen anything like this? Am I missing something?

Thanks,
ERA

retiredjg
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Re: State Income Tax vs Capital Gains TurboTax

Post by retiredjg » Sun Jun 28, 2020 3:57 pm

Federal taxes work that way too. Your AGI is your AGI. That does not mean each portion of your AGI is taxed the same way.

Some of those calculations happen offstage or behind the scenes or on attached forms. I think what happens offstage may be more obvious on the federal form than on your state form. I know that is true for me.

I suspect if TT does it wrong, your state tax bureau will let you know.

HomeStretch
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Joined: Thu Dec 27, 2018 3:06 pm

Re: State Income Tax vs Capital Gains TurboTax

Post by HomeStretch » Sun Jun 28, 2020 4:07 pm

The CT state income tax rates apply to your Federal AGI, as adjusted for a few state additions or deductions. CT taxes all income items at the same rates. There is no preferential treatment for capital gains or qualified dividends at the CT-state level like there is at the Federal level.

The CT-1040 state income tax calculated by TurboTax and confirmed by your online return input at the CT DRS website is most likely accurate IMO.

Topic Author
era00100
Posts: 31
Joined: Mon Feb 18, 2019 12:47 am

Re: State Income Tax vs Capital Gains TurboTax

Post by era00100 » Sun Jun 28, 2020 5:40 pm

HomeStretch wrote:
Sun Jun 28, 2020 4:07 pm
The CT state income tax rates apply to your Federal AGI, as adjusted for a few state additions or deductions. CT taxes all income items at the same rates. There is no preferential treatment for capital gains or qualified dividends at the CT-state level like there is at the Federal level.

The CT-1040 state income tax calculated by TurboTax and confirmed by your online return input at the CT DRS website is most likely accurate IMO.
Thanks - I was thinking this was a possibility, and I also find it hard to believe TurboTax wouldn't do this correctly.

However, I did find this: https://portal.ct.gov/DRS/Publications/ ... o%2014%25.

(Shows Cap Gains taxed at 7%, and the various rates for Dividends just below).

Thanks,
ERA

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anon_investor
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Re: State Income Tax vs Capital Gains TurboTax

Post by anon_investor » Sun Jun 28, 2020 6:00 pm

era00100 wrote:
Sun Jun 28, 2020 5:40 pm
HomeStretch wrote:
Sun Jun 28, 2020 4:07 pm
The CT state income tax rates apply to your Federal AGI, as adjusted for a few state additions or deductions. CT taxes all income items at the same rates. There is no preferential treatment for capital gains or qualified dividends at the CT-state level like there is at the Federal level.

The CT-1040 state income tax calculated by TurboTax and confirmed by your online return input at the CT DRS website is most likely accurate IMO.
Thanks - I was thinking this was a possibility, and I also find it hard to believe TurboTax wouldn't do this correctly.

However, I did find this: https://portal.ct.gov/DRS/Publications/ ... o%2014%25.

(Shows Cap Gains taxed at 7%, and the various rates for Dividends just below).

Thanks,
ERA
Your link is for old CT tax rules (now obsolete). The separate cap gains rates from CT income tax rates was repealed. Your cap gains are taxed at the same rate as your CT ordinary income tax rate.

https://authoring.ct.gov//DRS/Publicati ... 94/AN-94-2

Topic Author
era00100
Posts: 31
Joined: Mon Feb 18, 2019 12:47 am

Re: State Income Tax vs Capital Gains TurboTax

Post by era00100 » Sun Jun 28, 2020 6:06 pm

anon_investor wrote:
Sun Jun 28, 2020 6:00 pm
era00100 wrote:
Sun Jun 28, 2020 5:40 pm
HomeStretch wrote:
Sun Jun 28, 2020 4:07 pm
The CT state income tax rates apply to your Federal AGI, as adjusted for a few state additions or deductions. CT taxes all income items at the same rates. There is no preferential treatment for capital gains or qualified dividends at the CT-state level like there is at the Federal level.

The CT-1040 state income tax calculated by TurboTax and confirmed by your online return input at the CT DRS website is most likely accurate IMO.
Thanks - I was thinking this was a possibility, and I also find it hard to believe TurboTax wouldn't do this correctly.

However, I did find this: https://portal.ct.gov/DRS/Publications/ ... o%2014%25.

(Shows Cap Gains taxed at 7%, and the various rates for Dividends just below).

Thanks,
ERA
Your link is for old CT tax rules (now obsolete). The separate cap gains rates from CT income tax rates was repealed. Your cap gains are taxed at the same rate as your CT ordinary income tax rate.

https://authoring.ct.gov//DRS/Publicati ... 94/AN-94-2
Ah, good to know, thank you for the info.

HomeStretch
Posts: 4616
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Re: State Income Tax vs Capital Gains TurboTax

Post by HomeStretch » Sun Jun 28, 2020 6:25 pm

era00100 wrote:
Sun Jun 28, 2020 5:40 pm
HomeStretch wrote:
Sun Jun 28, 2020 4:07 pm
The CT state income tax rates apply to your Federal AGI, as adjusted for a few state additions or deductions. CT taxes all income items at the same rates. There is no preferential treatment for capital gains or qualified dividends at the CT-state level like there is at the Federal level.

The CT-1040 state income tax calculated by TurboTax and confirmed by your online return input at the CT DRS website is most likely accurate IMO.
Thanks - I was thinking this was a possibility, and I also find it hard to believe TurboTax wouldn't do this correctly.

However, I did find this: https://portal.ct.gov/DRS/Publications/ ... o%2014%25.

(Shows Cap Gains taxed at 7%, and the various rates for Dividends just below).

Thanks,
ERA
Your linked TSSN-29 from 1990 is obsolete and superseded (see statement right below heading).

You can verify the tax liability calculated by TurboTax for CT and the CT DRS online return by hand or in Excel. See the 2019 CT 1040X instructions starting on page 49.

Topic Author
era00100
Posts: 31
Joined: Mon Feb 18, 2019 12:47 am

Re: State Income Tax vs Capital Gains TurboTax

Post by era00100 » Sun Jun 28, 2020 6:29 pm

HomeStretch wrote:
Sun Jun 28, 2020 6:25 pm
era00100 wrote:
Sun Jun 28, 2020 5:40 pm
HomeStretch wrote:
Sun Jun 28, 2020 4:07 pm
The CT state income tax rates apply to your Federal AGI, as adjusted for a few state additions or deductions. CT taxes all income items at the same rates. There is no preferential treatment for capital gains or qualified dividends at the CT-state level like there is at the Federal level.

The CT-1040 state income tax calculated by TurboTax and confirmed by your online return input at the CT DRS website is most likely accurate IMO.
Thanks - I was thinking this was a possibility, and I also find it hard to believe TurboTax wouldn't do this correctly.

However, I did find this: https://portal.ct.gov/DRS/Publications/ ... o%2014%25.

(Shows Cap Gains taxed at 7%, and the various rates for Dividends just below).

Thanks,
ERA
Your linked TSSN-29 from 1990 is obsolete and superseded (see statement right below heading).

You can verify the tax liability calculated by TurboTax for CT and the CT DRS online return by hand or in Excel. See the 2019 CT 1040X instructions starting on page 49.
Ah ya, I see that disclaimer now. Thank you.

Topic Author
era00100
Posts: 31
Joined: Mon Feb 18, 2019 12:47 am

Re: State Income Tax vs Capital Gains TurboTax

Post by era00100 » Tue Jun 30, 2020 10:48 am

HomeStretch wrote:
Sun Jun 28, 2020 4:07 pm
The CT state income tax rates apply to your Federal AGI, as adjusted for a few state additions or deductions. CT taxes all income items at the same rates. There is no preferential treatment for capital gains or qualified dividends at the CT-state level like there is at the Federal level.

The CT-1040 state income tax calculated by TurboTax and confirmed by your online return input at the CT DRS website is most likely accurate IMO.
Quick follow up question - does the "standard deduction" (24k) come into play?

Or for state income tax, all Connecticut needs to know is my AGI, and then uses the following brackets:

Tax rate.....................Married filing jointly
3%.............................$20,000 or less
5%.............................$20,001–$100,000
5.5%..........................$100,001–$200,000
6%.............................$200,001–$400,000

Thanks again,
ERA

HomeStretch
Posts: 4616
Joined: Thu Dec 27, 2018 3:06 pm

Re: State Income Tax vs Capital Gains TurboTax

Post by HomeStretch » Tue Jun 30, 2020 11:46 am

era00100 wrote:
Tue Jun 30, 2020 10:48 am
HomeStretch wrote:
Sun Jun 28, 2020 4:07 pm
The CT state income tax rates apply to your Federal AGI, as adjusted for a few state additions or deductions. CT taxes all income items at the same rates. There is no preferential treatment for capital gains or qualified dividends at the CT-state level like there is at the Federal level.

The CT-1040 state income tax calculated by TurboTax and confirmed by your online return input at the CT DRS website is most likely accurate IMO.
Quick follow up question - does the "standard deduction" (24k) come into play?

Or for state income tax, all Connecticut needs to know is my AGI, and then uses the following brackets:

Tax rate.....................Married filing jointly
3%.............................$20,000 or less
5%.............................$20,001–$100,000
5.5%..........................$100,001–$200,000
6%.............................$200,001–$400,000

Thanks again,
ERA
CT AGI = Federal 1040 AGI, as adjusted by a few state additions and deduction. There is not a CT state standard deduction like your Federal return has.

Per the CT1040 instructions:
CT 1040 Table B uses your CT AGI to calculate your CT income taxes using the rates you posted, above, up to $400k (CT state tax table goes up to 6.99%). The tax liability calculated on Table B is adjusted, if necessary, to increase your tax liability:
1) on Table C to phase out the 3% Tax rate on taxable income up to $145k (Max adjustment is $400)
2) on Table D as a tax recapture on taxable income between $400k-$750k at the rate of $180 for each $10k or fraction thereof of income over $400k (max adjustment is $6,300)

The adjustments above, if applicable, can increase the top personal marginal tax rate to ~8.38%. The top rate is even higher if you pay business income taxes on CT-1065 as the CT pass thru credit on CT-1040 is no longer a full pass thru of the taxes paid on CT-1065.

Consider creating an Excel spreadsheet to calculate the components of your CT income tax. The spreadsheet can help you substantiate the tax liability you are seeing calculated by TT and the CT DRS online return.

Topic Author
era00100
Posts: 31
Joined: Mon Feb 18, 2019 12:47 am

Re: State Income Tax vs Capital Gains TurboTax

Post by era00100 » Tue Jun 30, 2020 11:57 am

Thanks, the excel sheet is actually what I am doing.

So in terms of those adjustments - none of them would come into play for an AGI under 200k, right?

Thanks,
ERA

HomeStretch
Posts: 4616
Joined: Thu Dec 27, 2018 3:06 pm

Re: State Income Tax vs Capital Gains TurboTax

Post by HomeStretch » Tue Jun 30, 2020 11:59 am

era00100 wrote:
Tue Jun 30, 2020 11:57 am
So in terms of those adjustments - none of them would come into play for an AGI under 200k, right?
Not right. Please reread my comment in prior post about the Table C adjustment.

Topic Author
era00100
Posts: 31
Joined: Mon Feb 18, 2019 12:47 am

Re: State Income Tax vs Capital Gains TurboTax

Post by era00100 » Tue Jun 30, 2020 12:20 pm

HomeStretch wrote:
Tue Jun 30, 2020 11:59 am
era00100 wrote:
Tue Jun 30, 2020 11:57 am
So in terms of those adjustments - none of them would come into play for an AGI under 200k, right?
Not right. Please reread my comment in prior post about the Table C adjustment.
Ah, I see now. Thanks again.

HomeStretch
Posts: 4616
Joined: Thu Dec 27, 2018 3:06 pm

Re: State Income Tax vs Capital Gains TurboTax

Post by HomeStretch » Tue Jun 30, 2020 12:42 pm

era00100 wrote:
Tue Jun 30, 2020 12:20 pm
HomeStretch wrote:
Tue Jun 30, 2020 11:59 am
era00100 wrote:
Tue Jun 30, 2020 11:57 am
So in terms of those adjustments - none of them would come into play for an AGI under 200k, right?
Not right. Please reread my comment in prior post about the Table C adjustment.
Ah, I see now. Thanks again.
You are welcome. :happy

The CT tax liability calculation hasn’t historically changed that often so the spreadsheet you are building should be helpful in future years too to confirm your tax return liability per TT/DRS website and to assess during the year whether you are having enough taxes withheld and/or paying quarterly estimated tax.

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