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Tax Planner - long term capital gains

:/ I have a problem with the tax planner. It's not calculating tax on LTCG. I'm testing the threshold between 12% and 22% brackets for MFJ. 2021 LTCG rate should be 0% for taxable income up to 80,800. That's slightly different than the margin for 12% vs 22%, which is 81,500.

My problem is I see no difference in income tax with or without adding LTCG in the tax planner, for taxable income of 80,800, 80,801, 81,500 or 81,501. I'm forcing that change with a schedule withdrawal from an IRA, which the tax planner treats correctly as ordinary income.

I should see additional tax of 15% for taxable income of 80,801, but there is no change in remaining tax due. Thinking the developers missed the difference between the 0/15 threshold for LTCG and the 12/22 threshold for ordinary income, I simulated taxable income at both levels but didn't see the 15% tax on LTCG.

Can anyone replicate this? Yes, I know I shouldn't use Quicken as my tax software but the integration between cash flow, investments and taxes is the only reason I still use it. I would confirm the planner output with tax software before taking actions based on Quicken, but it's nice to be able to estimate results without having to transcribe data into a different program.

Comments

  • markus1957
    markus1957 SuperUser, Windows Beta Beta
    I checked this after the planner was updated for 2021; it was correct then.  I checked again today and it is still correct.  FYI, the 22% rate is 81,050. 

    It's easiest to test the bracket cutoffs in a test file and manually enter values.  In a new test file enter $25,100 of interest to cancel out the standard deduction.  Then use various short term gain entries to test the bracket cutoff calculations; $81,050 will give correct tax of $9,328.  Add $100 dollars to that and tax will go up $22.

    Return short term gains value to $0 and enter $80,800 of long-term gains, tax owed is $0 as it should be. Enter $80,900 and tax will be $15 as it should be.
  • SomebodyInGNV
    SomebodyInGNV Member
    OK, so I was misinterpreting the tax tables found on TaxFoundation.org. I thought the 80,800 referred to the threshold of taxable income below which capital gains was taxed as 0% vs 15%. The label of their table says "taxable income over". From your response it seems that it's the level of LTCG itself that determines the tax rate threshold?

    I'm confused, I'm sure.
  • SomebodyInGNV
    SomebodyInGNV Member
    I think I understand now. The capital gains tax rate is determined by the combination of ordinary and LTCG income, with LTCG treated as marginal. The threshold for the 15% LTCG marginal bracket is 80,800 combined income and only the amount of LTCG over the threshold is taxed at that rate. The amount of LTCG below that threshold is taxed at 0%.

    The marginal rate for the ordinary portion of taxable income is independent of LTCG.
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