 Income tax 2022-2023. Capital gain or loss tax software example. Let's do some wealth preservation with some tax preparation. Here we are in our example Form 1040 populated with LASERT tax software. You don't need tax software to follow along but it's a great tool to run scenarios with. You can also get access to the Form 1040 related forms and schedules at the IRS website irs.gov irs.gov starting point single file or we've got then no dependence 100,000 W2 income 12 support accounting instruction by clicking the link below giving you a free month membership to all of the content on our website broken out by category further broken out by course each course then organized in a logical reasonable fashion making it much more easy to find what you need then can be done on a YouTube page we also include added resources such as Excel practice problems PDF files and more like QuickBooks backup files when applicable so once again click the link below for a free month membership to our website and all the content on it thousand nine fifty for the standard deduction getting us to that eighty seven thousand fifty mirroring that over here on our Excel worksheet in a formula formula format 100,000 twelve thousand nine fifty there's the eighty seven thousand fifty page two we're going to rely on the tax software to do the calculation which is important when we talk now about the capital gains because we could have a scenario then where we have favorable tax rates if we're talking about long term capital gains currently that's at fourteen seven seven four then we said there's fifteen thousand withholding skittness down to the two to six on the bottom line there's the two to six okay we're going to be talking about the capital gains now so if I go back on up to page one now we might dive into capital gains in more depth in a future presentation right now we just want to get a general idea that the capital gains of course are another type of income that will be flowing into page one of the form 1040 often populating or going through the other form of the schedule D so for most people you'll get like a ten ninety nine something that will look something like this it'll have a B on it so if your financial institution you do business with you might then have interest from them dividends from them which will be a ten ninety nine interest or ten ninety nine div and then also they might give you a ten ninety nine B which not might not look exactly like this but we'll have the key fields hopefully in order to do the population that being the proceeds what you got they should have that for sure and the date that you sold it they should have that for sure and then hopefully they can estimate or get or provide the date that was acquired which is the more difficult field for them to to populate because you might have the stock before you were doing business with that particular institution and then the cost is also another area of complexity because hopefully they can provide you that but you might have the stock before you dealt with them and there might have been various stock splits you might have inherited the stock and all this complicates what the value or cost of the stock would be so that's the thing that we got to be aware of that we can run into problems with first of all also note that you might have like a summary from your financial institution that will give you the total proceeds and then you might have to go to the the detail to get more information about all the sales that were taking place also realize that if you're in a situation for most clients their investments are under the umbrella of an IRA or a 401k even though they're invested in stocks for example and that would mean that when they when they actually are in retirement then they're going to get then they're going to get the the 1099 are most likely and you'll have to pay ordinary income because you got a tax benefit when you put the money in to that type of retirement account you'll have the 1099 be typically from stocks that were sold possibly from like a day trader type of situation or someone that has investments which would be good to have outside of the umbrella of an IRA for like the short term needs or if they've maxed out what they can put into an IRA or 401k plan and then when you sell those items that's when you would expect to be receiving something like a 1099 be we could have gains we could have losses related to the sale as well so let's then populate this over here we're going to say alright there was a sale that took place we've got this 1099 be so I'm going to go in and say that we have income and let's say it was an income from schedule D and then I'm going to populate something like now the quantity would be how much we sold and the description we might say shares of whatever stock and then the date acquired now note if they give you if it was one or two stocks sold and you have the exact date acquired then then that's great but if you have multiple sales of stocks then you might have to go into the detail and put each of those transactions in or summarize them possibly the major thing that we need to do when we summarize them if that's the tactic we take is to make sure that we're categorizing long term versus short term so let's take like one stock for example first let's say the acquired date let's say we know what the acquired date is because they gave it on the 1099 be or the sub schedules related to it is 0101 let's say 00 okay that's then 0101 00 so January 1st 2020 so that's clearly over a year old therefore it's going to be long term and possibly subject to the more favorable capital gain rates I'm going to say we sold it we would have had to sold it sometime in 2022 of course I'll just say it's in the middle of 2022 the sales price let's say was 1000 but the cost what we purchased it for the difficult calculation if this was stocks that were old and had splits and whatnot that's where the issues could come in on the cost and on the date acquired which may require some estimates sometimes right so I'm going to say let's say the cost was 300 and so there's a gain that was applied and so on and so forth let's do that for the example jumping to the tax forms we now have a schedule D that has been populated capital gains and losses so if I scroll through the schedule D I don't have anything populated in the short term because it wasn't a short term calculation it's a long term calculation down here where we have the 1000 minus the 300 that means the gain is $700 and there's the 700 that's going to be pulling into the 1040 so here's the form 1040 and then we've got the gain that's pulled in right there now if I mirror this on the software over here I can mirror this in our calculation but remember that we've got this other issue with the tax calculation down here because we're not taxed at ordinary income because it was a long term capital gain so let's go back on over and say okay let's add the schedule D do I have a schedule D no so I'm going to say add I'm going to pull this to the right I'm going to do this fairly quickly because it's not an excel course but I'm just going to make another sheet that will mirror the schedule D I'm going to put my cursor on the whole sheet the triangle format it I like to make it currency bracketed negatives no dollar sign let's remove the decimals I'm going to make it larger and I'm going to call this an A1 let's say it's a schedule my fingers aren't on the schedule D capital capital capital gains boom and then I'm going to make this one a little bit larger and let's put it home tab font group we're going to make it black and white for the header let's do that I'm going to make the whole thing in bolden so you can see it a little bit more and then we're going to have a short term short term and then I'll have long term maybe down below long term something like that and I'm going to leave a bit of space for both of those and make this black and white and let's make this black and white I'm going to leave I'm going to make this like blue or something so let's go blue and bordered blue and bordered and then I'm going to say this was the sales price and this is going to be the cost and let's make another one and this is going to be the gain or loss gain or loss and I'm going to format this over here let's center this like so let's do the same thing down below copying this and paste it here I'll put some blue and bordered blue bordered and I'll say this is the total short term term capital gains I'm going to sum up the outer column and then this is going to be the total long term capital gains I'm going to sum up on the outside and then we'll say this is the total capital gains or losses I should be saying but I'm going to say gains for now boom let's spell check it review and spell checkie boom perfection now this is a simplified worksheet because there could be weird scenarios when you kind of match up the short term and long term capital gains and so on but let's just this is what we're going to do for now so I'm going to say okay on the long term capital gains we sold shares and the sales price we said it was 1000 and the cost was I think 300 the difference is calculated at that 700 I'm going to have to pull back to my formula it's going to be included in line 1 so I need to double click on line 1 go to the end of it I'm going to add that whole schedule D populated into my summary worksheet so I'm going to say pull that in from the schedule D which is this one I need to name the worksheet this is going to be I'm going to double click on the worksheet and call this schedule D schedule D cap gains something like that so then that pulls in over here so there we have it so now we've got the now notice this is another area where we're basically we had kind of you might think of an expense right because over here I had this is like the gross income and this was the cost or or what I needed to expand in order to get the income so we don't we're not going to say the gross income is pulled in we've got kind of you might call it a deduction the cost to get to the net income in essence the gain or loss which is pulled into line 1 of the income tax formula we still have the 12,950 here that's the 87,750 which should match so 87,750 page 2 I'll let the calculation of the software work 14,879 so 14,879 I'm going to put the old number here so 14,774 has been changed to 14,879 so notice the difference between those two is now 505 on a $700 increase so there's a $700 increase that increased the tax 105 so what's the rate on that 1,715% so notice here that the average rate is 17% if I go back to my tax software and I say okay let me look at my tax summary to look at my rates then notice the marginal tax rate is actually 22% so you would expect that if it was applying the ordinary rate it would be applying that 22% but it's picking up because I'm in this threshold of the income threshold it's picking it up at 15% taxing at the favorable tax rate of 15% instead of the 22% we could see that if I go to the 1040 page 2 and look at the worksheet here and see the calculation on the 700 it's kind of pulling it out separately so that calculation is quite complex because now we have a progressive tax system and also these other types of income now including long term benefits more than setting the one time cost capital gain which could also include dividends that is completely separately calculated from the tax than the normal progressive rates so you're probably not going to do that calculation yourself but you want to be able to explain that difference on the capital gains and take into consideration that difference when doing you know tax planning and that kind of stuff now let's go back on over and let's say that it was short term so let's say it was short term and say that we bought it in January of 2022 so we sold it within a year so now it's short term therefore same impact on the net income but the tax rates should be at ordinary income rates now it's up top at the short term portion and then if I go to the form 1040 it pulls over maybe that here I'd say okay now let's reflect that here I'm just going to say now it's not on the long term let's cut this and just paste it right there boom it's on the short term no difference to the first page of the form 1040 in terms of the income but the tax will change so if I go back on over and say okay page 2 tax is now at the 14928 so I'm going to put the 1414928 so that minus that means that on the $700 we had an increase of 154 so it taxed it at the 22% which is the marginal tax rate the highest tax rate that's what we would expect and anytime there's a change in income it's going to be taxed at that higher or marginal tax rate now so that obviously gets more confusing it's fairly straightforward here but it gets more and more confusing if you had a short term and long term gains right because in the short if they were both gains the short term and the long term would be taxed at different rates but what if you have a loss like a short like a short term gain and a long term loss or something like that then when you cancel them out against each other that's where you get to get these funny rules because because there's different tax rates on the 2 so if you have short term and long term that cancel each other out you get into kind of some weird scenarios I won't dive into all of them at this point we might touch on them a little bit more later but for now I also just want to point out that if you have multiple shares if you're dealing with a day trader then you would have to enter like all of the shares in order to populate properly into the software instead of doing that you might just say this is the quantity a number of shares from and you might say this is from the e-trade e-trade C attached for detail or something like that and then you could say this whole thing is going to be the short term portion from e-trade and then you might say that you had I'm just going to summarize all the long term this is going to be e-trade which I'm not sure I spilled right e-trade long term portion and then in the cert tax software I think if you put a negative in front of these fields it'll show as a very date so I'm going to say this is e-trade and then this is what is it doing there e-trade it won't let me delete that one thing long term oh my goodness e-trade C attached for detail long term negative and let's make this 010100 and negative 060622 and let's say we sold you know 10,000 here and the cost was so then I summarize these up and possibly attach then an attachment showing all the detail if I need to provide that detail so I'm not entering in 100 different lines right because the major tax consequences are whether or not their short term or long term if I make this pull over then I've got the short term which is still the 1000-300 and the long term now at the 10,000-3000 so the total impact is 7,000 that's pulling over to the form 1040 here there's the 7,700 and then if I go to page 2 I'm going to have that calculation on the short term and long term the long term being taxed at long term capital rates the short term at the short term capital rates now with the losses here just note that there's a limit on the losses so let's take the long term and just delete the short term and let's pretend that we had a loss so let's say we sold them for 10,000 but we bought them for 20,000 right and so now I'm going to say okay that means that I've got a loss but this is similar thing with the schedule C where you get now I've got a loss of the 10,000 because I paid more than I sold them for I realized I had a loss because I sold them and there's the 10,000 loss but when I pull that on over to the 1040 it only pulls over 3,000 and that's because for individual filers the capital gain losses are capped at 3,000 noting that the IRS like with the schedule C is skeptical of losses they want a piece of your income they don't want to have to be taking on the risk of your losses right so then the question is now you have a carryover situation where you might be able to carry over the added losses to a future year and that's when it's quite useful to be using the same tax software from year to year because those carryovers will be quite useful if you have a carryover situation or a more complex return possibly a schedule A being involved itemized deductions, higher income levels I would say if you have a new client I would take the time to put that information into the prior year software matching what they did in the prior year so I could roll it over and have that software help me with some of these rollover type of items. Here's the capital loss carryover worksheet so enter the amount so I won't go through the whole thing but you've got the 3,000 here so you've got 7,000 long term capital loss carryover to 2,023 so if I go back up now you've got to deal with that kind of carryover situation and calculate that in my return over here it gets a little bit messy because now I'm going to say there's that then we have the long term which I said was 10,000 and the cost was what did I say 3,000 is that what I said I said 20,000 no the cost was 20,000 because it's a loss that's the point so now there's a loss and if I net those out that comes out to 29,300 of the loss notice again we still have this kind of weirdness with a short term and a long term actually I removed this short term so now we've got a loss of 3,000 and then I'd have to limit it some way down here to the loss so I'm going to say total let's say this is limit limit is going to be of a $3,000 limit so I can do an formula that equals if this number is less than than if it's less than negative 3,000 then comma I want you to do 3,000 if not comma then it's greater than that then I want you to take that number I think that's how it works I think I got that I want you to put not 3,000 but a negative 3,000 then I want you to put a negative 3,000 so then if this was a positive number like 2,000 then it would be 2,000 but when it's negative it caps it at 3,000 and then the carry over carry over to future something is now going to be equal to this minus this so I've got a 27,000 carry over which I can kind of match to my schedule if I go over here I need to refix this last bit instead of coming from schedule D there I'm going to say it comes from schedule D schedule D right there that 3,000 limit so then I'd have to fix my worksheet like that I won't go into that in more detail than that but that's the general idea so the capital the capital gains you've got to see if it's short term or long term usually it's going to be long term unless you've got day traders involved and then you've got this issue with the short terms and long terms which actually gets quite complicated when you kind of mix together the short terms and long terms but the general idea if it's a long term capital gain you might have a favorable tax rate so you want to be able to understand that and note that you might be able to match out capital gains and capital losses which is a good thing to be able to understand possibly for a general kind of tax planning going into the future and with regards to the data input you might be able to summarize mainly breaking out just the short term and long term those are the major two categories that you need to break out in order to get the tax calculation correct and then possibly provide the iris with the more detail of all the transactions that make up the short term and long term components and then if there are substantial losses that are going to be realized then you want to be able to understand that the losses are going to be cut and any time you have losses that should kind of come to mind the iris might try to restrict losses they don't like to pay you for losses but that's when they are going to say the 3,000 and any time you're not able to get the full benefit of a loss the question is can I carry the loss to some period in this case carrying it forward and possibly being able to take it against future capital gains into the future