0% Capital Gain/Qualified Dividends

[jasdlm]

Client has $76,881 in Wages, $7,855 in Interest, $42,433 in Dividends ($39,302 of which are qualified), a $3,000 net capital loss and a $12,754 farm loss (because of bonus depreciation on a Tractor) . . . Itemized deductions of $55,873 because of a $36,000 investment management fee (sheesh). Total tax: $199. This is really not right. I hope one of you is going to tell me I've done something wrong, but I don't think so. Client is not going to like this . . . he can afford to pay taxes and is paying less than many who truly can't afford what they're paying.

I'm also really nervous and haven't signed off on the return yet . . . it just seems like it can't be right.

Am I doing something wrong?

[David1980]

What's the filing status? (I seem to be getting different numbers than you, still low tax but not that low.)

Any kids?

[jasdlm]

Sorry . . . 1 wife; 2 kids . . . both kids over 16.

[kcjenkins]

You must be doing something wrong. I get AGI of 116,415 less 55873 ID and 14000 exemptions is taxable income of $46542. and tax is $723. Looking at the worksheet behind the line, regular tax would have been only on $7240, because the tax rate on qualified dividends and net cap gains is zero for 2008, and that is $39302 of the taxable $46542. The tax on the remaining 7240 is $723.

[jasdlm]

Thanks, KC. I can't come up with the $116,415 AGI. I'm going to give up and try again tomorrow. Thanks for taking the time to work through it. Hopefully tomorrow I'll get it right.

[kcjenkins]

I got the AGI directly from your numbers, Line 7 81881, opps, sorry, I used my 'Test' return, and forgot I had another W-2 in there. OK, now it's AGI of $111415, and the tax goes to $224, same logic. Look at the worksheet behind line 44, to see it more clearly.

[jasdlm]

KC, you rock. Thanks very much.

[David1980]

I'm getting $224 as well.

AGI: $111,415

Taxable income: $41,542

Did the qualified dividend & capital gains worksheet from the 1040 instructions manually.

Line 1: 41,542

Line 2: 39,302

Line 3: 0

Line 4: 39,302

Line 5: 0 (Is there anything on 4952 line 4g? I assumed not.)

Line 6: 39,302

Line 7: 2,204

Line 8: 41,542

Line 9: No 2,240

Line 10: 39,302

Line 11: Yes skip 11 through 14

Line 15: 224

Line 16: 224

Line 17: 5,426

Line 18: 224

So looks like we're matching up, or at least really close to that $199. If it's any consolation, without the 0% capital gains rate the tax would have only been about $2,189 - basically the taxpayer saved $2,000 thanks to the 0% capital gains tax rate.

[jasdlm]

David, thanks so much. I appreciate the expert advice on this Board more than I can say.

[RitaB]

Client has $76,881 in Wages, $7,855 in Interest, $42,433 in Dividends ($39,302 of which are qualified), a $3,000 net capital loss and a $12,754 farm loss (because of bonus depreciation on a Tractor) . . .

jasdlm (wow, say that three times fast) - I know this is not your question, but have you considered passing up the bonus depreciation on the tractor? I mean, he may need the deduction more in the future. He's not getting much, if any, deduction for SE tax there (unless it's one heck of a tractor, which it could be). I'd at most take section 179 in whatever amount gets his Farm income down to $400 and quit there. Actually, I would probably just take the conservative regular depreciation.

At least I think that's what I'd do. There may be other considerations and I'm missing something. I'm subject to do that in April... Hey, maybe I can run it by my hairdresser later when she picks up her return...

[jasdlm]

Rita, that's a good idea. I think I will talk with him about not taking the bonus depreciation. . . I'll run it by my hairdresser first, though!

Thanks so much!