Qualified Dividend and Capital Gains Tax Worksheet? (2023)


The tax rate computed on your Form 1040 must consider any tax-favored items, such as qualified dividends and long-term capital gains, which are generally subject to lower tax rates.

Qualified dividends and LTCG are subject to either a 0%, 15%, or 20% tax rate, depending upon your overall income levels.

If you received qualified dividend income or long-term capital gains during 2021, you'll need to use the regular federal tax tables, as well as the qualified dividend and capital gain tax worksheet.

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DISCLAIMER: I am a licensed attorney and certified public accountant (CPA) in the State of Florida. I am not a financial advisor. The information provided in this video is for entertainment purposes only. No such communication is provided in the course of an attorney-client relationship, and no communication is intended to constitute legal advice. You should speak with your own tax and legal professionals to discuss your circumstances before performing any of the tax, legal or accounting strategies demonstrated in this video. This description includes links to affiliates. I may earn a commission or referral bonus if you use these links to purchase products or services from the providers. Thank you.

#QualifiedDividends #CapitalGainsTaxes #Form1040


Okay, welcome back so for this video.

What I wanted to cover is how to use the qualified dividends and capital gains tax worksheet when you prepare your form 1040.

So why is this important? This is important because when you do your taxes, qualified dividend, income and long-term capital gains are generally subject to a lower tax rate, so you effectively have to use two tables.

If you have these types of income in order to more appropriately calculate what you owe in taxes, so I got a couple pieces in front of us here.

I've got one slide which I'll walk through.

I've also got a sample 1040 here for a taxpayer that has qualified dividend income and some long-term capital gains, and then I've got the 1040 instructions here for 2021, and this is where we'll reference the tables.

So you can see what it is.

I'm talking about.

Okay, so go back to the slide here to start so again, generally form 1040 taxpayers can compute their tax liability using either the standard tax rate tables, and you can find these in the 1040 instructions or you can use the qualified dividend and long-term capital gains tax worksheet most often you have to use both and I'll.

Show you why? Okay, now, the reason why the 1040 tables alone don't work is because it assumes that all the income is ordinary income.

So when you look at those tables- and you find your taxable income amount, they are presuming that that's all ordinary you'll have no qualified dividends.

You have no long-term capital gains, and so it's going to subject it to the higher marginal tax rate, depending on wherever your your tax bracket is so the qualified dividends and ltg or ltcg, rather subject to either a zero percent rate 15 or 20, and it all depends on what income bracket you're in right.

So if you have any types of income here, you should always use this worksheet to make sure you're getting the lowest available rates.

Now, let's look at our example.

Here we'll run through the facts, first look at the table and then I'll go over the form 1040 itself.

So in our example, we have john here he's a single taxpayer and he has w2 income of 32 500.

In addition to that, he has qualified dividend income from his broker uh for 105 dollars, and then he has seven hundred dollars in gains.

That's long-term capital gains from the sale of stocks during the year.

Okay, now john isn't itemizing his deductions he's going to take the standard deduction.

So if you add up the income take out the standard deduction, his taxable income is going to be twenty thousand seven.

Fifty five now, if john uses the federal tax tables only- and he uses this twenty thousand seven, fifty five number- he is subjecting the entire amount to that higher marginal tax rate he's not factoring in the qualified dividend, income or the long-term capital gains.

So based on this amount, the total incomes, the total income tax will be 2294, which is going to be higher than if he uses the qualified dividends and capital gains tax worksheet.

So how do you figure out the rates well for 2021? These are the ranges.

So if you're, a single filing taxpayer and your taxable income is under forty thousand four hundred your qualified dividend, income and long term, capital gains are going to be subject to a zero percent rate.

Okay, that's how this table works.

If john made more money and his income was between forty thousand four one and up to 445, then the qualified dividend- income long term capital gains are subject to a 15 rate, okay and then so on and so forth.

In our example, what we're going to have here is john, is within this range here this first quadrant, so he's going to get a zero percent rate on those qualified dividends and long-term capital gains.


So now that we've run through the facts, let's look at the return, so we can see how all this works out.

Well, actually, first I'll go to the tax tables.

First, after we run through page one here so page one standard, 1040.

uh, we have john's wages up here.

We have the dividends right, 105 of ordinary dividends, of which 105 is qualified right.

So all the ordinary dividends that he received are qualified dividends for the year.

Um schedule d is attached and it shows that he has 700 in long-term capital gains.

So we could see that here schedule d, there's the sale of his stocks, 1500 in proceeds 800 in costs, 700 and long-term capital gains.

Okay, so we add up these amounts.

As total income is 33, 305 takes a standard deduction, so his net taxable income here on line 15 is 20 755 dollars.

Now the software we use, you know, calculates the lower rate for us right, so they've already calculated the 21.98 because they are doing the worksheet for us.

But if I flip down here, you can see how the worksheet is broken out.

What the software has done for us and I'll show you how to do this manually is, they have said, look we've looked at the tax per the tax rate tables and it came out to be two thousand two hundred ninety four dollars.

But if you do the qualified dividends and capital gains tax worksheet you get it twenty one.

Ninety eight so you're saving about a hundred dollars there.

Okay, so how did they get the two two? Nine? Four? Well, if you look at your taxable income here, twenty thousand seven fifty five and go to the forum instructions.

There are tax tables in the form instructions.

So we have here the 2021 tax table.

We can jump to page 65., so this is where we have the tax tables.

It's broken out, uh into single married, married filing, separate head of household, and so you look for your taxable income number within the range and that's the tax you owe so here we're in the two thousand dollar range.

We've got to go all the way down to twenty thousand uh 755.

Is it right so we're in the twenty thousand bucket here? If we look here, twenty thousand seven, fifty to twenty thousand eight hundred, so twenty thousand seven hundred fifty five dollars- that's our taxable income number remember here on line 15 taxable income 20, 000 755.

So if we look at the tables within this range, single filing taxpayer is this first column we see the number there two hundred and ninety four dollars.

Okay, so that's the tax computed, assuming that all of the income is subject to federal ordinary income taxes.

But of course the essence of this video is that he has qualified dividends and long-term capital gains, so we need to compute those taxes at the lower rate, all right.

So if we go down to the worksheet here, let me jump down to the last page where we have our worksheet now you can find this worksheet in the form, 1040 instructions, and so I'm going to walk through kind of high level the sections and then we'll go back through some of the details at the top.

So what they're going to do here is we're, starting with our income at the top and we're separating it out in between between the qualified dividend, income, the long-term capital gains, and then we are working our way down the schedule to see what range of income we fall within so notice.

Here on line six, it's asking us to enter forty thousand four hundred of single or married.

Eighty thousand eight hundred what they're doing there is they're trying to figure out.

Where is your income within that within those brackets? The same thing on line 13 here, 445, 850 of single and so on, so the worksheet is trying to figure out where you are within this table? Okay, because again that's going to drive what tax rate you use to apply to your qualified dividend, income and your long-term capital gains.

So if we start at the top here, it's asking us to enter our taxable income.

So twenty thousand seven, fifty five- we pulled that from page one of the ten forty.

Then it's asking us to enter the amount of qualified dividend income.

This is line three a from year, ten.

Forty, a hundred and five dollars, then it's asking us to enter the amount of long-term capital gains.

We've got from schedule d, that's 700.! The total of all these amounts is 805, and so, if we subtract out the 805 from the taxable income number we're left with this piece, which is the amount that's going to be subject to ordinary federal income taxes? Okay, so then again it now.

It's trying to ask us where we're going to fall within this income range to see how much this income is going to be subject to tax at either a 0 rate, a 15 rate or a 20 tax rate, and so in our example.

Here, 40 400 is the first stepping stone right.

Our income is below that amount.

So, on line nine they're asking us subtract line eight from line.

Seven we've got 805.

This is the amount that's subject to tax at the zero percent rate, so our our income ranges are falling below the 40 400 number, which means that our qualified dividend income, our long-term capital gains, are going to be subject to tax at a zero percent rate.

Now, if you go through this worksheet and your income is above that initial stepping stone, then they're going to see to make sure that you fall within this range.

So if you're, between thousand four hundred and four four five, eight fifty as a single taxpayer, as you work your way down the schedule, you're going to eventually end up here to line 18, which is going to be multiply that piece of your income by 15 right.

So, if you're within that income bracket your qualified dividend income, your long-term capital gains is going to be subject to 15 percent.

Now everybody else, if you're a high income taxpayer and you're making more than this, let's say: you're on half a mill a year, the qualified dividends and long-term capital gains going to be subject to a 20 rate.

Now what it doesn't cover here and that's beyond the scope of this video is: is the net investment income tax so nit? That's an additional tax on top of the 20 that you pay on qualified dividend, income and long-term capital gains it's 3.8 percent uh.

But again it's it's a separate tax computation, it's beyond the scope of this video.

I do have a separate video which I could put a link below that covers the ni team.

It's an additional medicare tax uh.

So if you find that your your income is, is much higher and you're within scope of that, then you need to factor that in as well, but for purposes of this video.

Obviously the idea here is to highlight how you can't just use the regular tax tables if you have qualified dividend income and if you have long-term capital gains, if you have either of those two amounts, you need to use this worksheet to figure out the reduced rate on those income items and then calculate the regular tax rate on that other ordinary income.

Okay, so once everything is said and done, we've got an adjusted balance here, two thousand one ninety, so that is the amount that's going to be subject to tax this year, or that is the tax.

Rather, so that's why we have the 200198 number up there, not the 2294, which is just the regular income tax tables.

Assuming was all ordinary, and so that's how john saves a little bit of money this year by not using just the standard tables here in the instructions, make sure you're using the qualified dividend, income tax, worksheet and that'll help you save a few tax dollars.

Okay, so I hope that was helpful.


Thank you for watching and, of course, I always look forward to seeing you on the next video like and subscribe to the channel.

If you haven't already and everybody take care.

Thank you.


When can I use qualified dividends and capital gain tax worksheet? ›

The worksheet is for taxpayers with dividend income only or those whose only capital gains are capital gain distributions reported in box 2a or 2b of Form 1099-DIV that were received from mutual funds, other regulated investment companies, or real estate investment trusts.

Do qualified dividends offset capital gains? ›

Capital gains do not include ordinary income, such as interest or dividend income. Although qualified dividends are taxed at long-term capital gains rates under current tax law, you cannot use capital losses to directly offset qualified dividends.

Are qualified dividends and capital gains taxed the same? ›

Whereas ordinary dividends are taxable as ordinary income, qualified dividends that meet certain requirements are taxed at lower capital gain rates. The payer of the dividend is required to correctly identify each type and amount of dividend for you when reporting them on your Form 1099-DIV for tax purposes.

What are the tax rates on qualified dividends and capital gains? ›

Key Takeaways. Qualified dividends must meet special requirements issued by the IRS. The maximum tax rate for qualified dividends is 20%, with a few exceptions for real estate, art, or small business stock. Ordinary dividends are taxed at income tax rates, which as of the 2023 tax year, maxes out at 37%.

How are qualified dividends and capital gain distributions treated? ›

Qualified dividends are taxed at the same rates as long-term capital gains. Long-term (held more than one year) capital gains distributions are taxed at long-term capital gains tax rates; distributions of short-term (held one year or less) capital gains are taxed at the same rates as ordinary income.

Where to report qualified dividends and capital gain distributions? ›

1099-DIV reporting boxes
  • Box 1a of your 1099-DIV will report the total amount of ordinary dividends you receive.
  • Box 1b reports the portion of box 1a that is considered to be qualified dividends.
  • If your investment makes a reportable capital gain distribution to you, it will be reported in box 2a.
Jun 2, 2023

Are qualified dividends added to long-term capital gains? ›

Certain dividends known as qualified dividends are subject to the same tax rates as long-term capital gains, which are lower than rates for ordinary income.

How do I avoid paying taxes on qualified dividends? ›

Options include owning dividend-paying stocks in a tax-advantaged retirement account or 529 plan. You can also avoid paying capital gains tax altogether on certain dividend-paying stocks if your income is low enough. A financial advisor can help you employ dividend investing in your portfolio.

How do you offset qualified dividend income? ›

The IRS will let you use up to $3,000 in net capital losses to offset income from dividends. Within this limit, you also can use capital losses to shelter other income, such as wages and salaries. Have a conversation with a financial advisor before making investing decisions.

How are capital gains and dividends taxed differently? ›

Taxes. Capital gains and dividends are taxed differently. Dividends are going to be either ordinary or qualified and taxed accordingly. However, capital gains are taxed based on whether they are seen as short-term or long-term holdings.

How do you figure tax on qualified dividends? ›

Qualified dividend taxes are usually calculated using the capital gains tax rates. For 2022, qualified dividends may be taxed at 0% if your taxable income falls below: $41,676 for those filing single or married filing separately, $55,801 for head of household filers, or.

How do qualified dividends affect tax bracket? ›

Qualified dividends are taxed at capital gain rates of 0%, 15%, or 20%, depending on your tax bracket. If you are: In the 10% or 12% tax bracket, your qualified dividends are taxed at 0%, In the 22%, 24%, 32%, or 35% tax bracket, your qualified dividends are taxed at 15%, and.

Should I reinvest dividends and capital gains or just capital gains? ›

As long as a company continues to thrive and your portfolio is well balanced, reinvesting dividends will benefit you more than taking the cash will. But when a company is struggling or when your portfolio becomes unbalanced, taking the cash and investing the money elsewhere may make more sense.

Do you put qualified dividends on Schedule B? ›

Schedule B is a tax schedule provided by the Internal Revenue Service (IRS) that helps taxpayers compute income tax due on interest paid from a bond and dividends earned. Individuals must complete this form and attach it to their annual tax returns if they received more than $1,500 in qualified interest or dividends.

What are the IRS rules for qualified dividends? ›

Meeting these requirements entitles you to lower taxes on your dividends.
  • The company or entity paying the dividend must be domestic or a qualified foreign corporation that trades on the NYSE stock exchange. ...
  • The distributions must be ordinary dividends. ...
  • They must meet the minimum necessary holding period.
May 8, 2023

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