 Income Tax 2021-2022 Software Example Capital Gain or Loss. Get ready to get refunds to the max. Diving in Income Tax 2021-2022. Lesser Tax Software, you don't need access to any software to follow along, but you might want access to the forums which you can find on the IRS website at irs.gov, irs.gov, our starting point here being our single filer Adam Smith living in Beverly Hills 90210 100,000 on the W-2 Income. The standard deduction $12,550 giving us the taxable income $87,450 and mirroring that in our tax equation in Excel, the $100,000 to $12,550, the $87,450 taxable income. Page 2 then calculating the tax at the $15,15 mirroring that over here with the $15,15. Going back to our tax return, we're now going to be looking at the most common kind of scenarios for a schedule D, capital gains and losses which would flow through to the first page here on line number seven. So we're focused here online semper remembering that we would typically be receiving then a 1099B. This is a look at a 1099B, but it won't often look this way because oftentimes it's going to be in a summary format from the financial institution which is going to pick and choose basically the boxes that are going to be applicable to them at that point. So notice the boxes that are typically applicable. You got the date acquired and the date disposed. If you're talking about multiple stocks that were acquired and sold, then these dates might be kind of like summary dates here and they might report that it's long term and short term and give you the detail of that information and the subsequent items of the reports giving you all the individual stock sales that took place and all the related gains and losses related to them. And then we've got that's going to be an important part and obviously the proceeds, what you received might be summarized on the first page of the report in the 1099B summary information and then all the proceeds from all the different stocks that were sold might be in the following pages which should tie out to the summary page and then the cost or basis often being the most complex components might be summarized in the first page and it might be estimated as well because they might not know exactly what it is. They're going to give their best guess because this is where the biggest problem is because you might have been holding on to these stocks for a long period of time. You might not have been with the same brokerage firm for the entire timeframe. So that cost or basis can be kind of a confusion calculation but once again it might be summarized on the first page giving you then all the detail of the stocks and bonds that might have been sold on following pages. Now also just realize that it's likely that many people have access to stocks that they're investing in but a lot of times it's under the umbrella of say a 401K or like an IRA during at least their working years and they possibly don't put a lot of money in and out of it because they're invested in mutual funds or something like that under the umbrella of a retirement plan. So you might not see if you're under a certain level or if you're concentrating on a certain type of return in terms of income level or complexity a lot of 1099B activity. When you start working for more well-off individuals or people that like to say day trade do a lot of trading in stocks then you're going to see more of this kind of activity. If you see a lot of trades that are taking place then you might try to summarize the data into short term and long term and then try to give an attachment to the IRS of the detail of all the information that's taking place instead of hate entering like 400 actual transactions that took place one by one line by line. So just from a logistic standpoint just keep that in mind as well. So I'm going to go back on over. This is going to be our schedule D. So if I go if I open up the schedule D just to take a look at it and go down here to the schedule D this is going to be the capital gains and losses. So we have the information on part one which is the short term capital gains and losses and then we've got the long term capital gains and losses. So when you think about those there's going to be different tax treatment for the long term capital gains and losses. You have in essence another progressive kind of tax system that is taking place but generally you're going to have a more beneficial tax rate than you would have if you categorize it in what we call ordinary income which would be the normal tax rates. Now again this is something that you kind of want to know you want to be able to tell someone hey you're going to have favorable tax rates for capital gains if their long term capital gains meaning sales that happened that were over a year you held on to it for over a year. But you're probably not going to calculate that when you actually calculate the tax because that's going to be included when the tax calculation happens in this number 16. So once again this is another area that makes it really complex to actually kind of calculate the taxes because now you got a progressive tax system. You got to know what the income is. The income levels can change the levels of taxes that are going to be applied. And now you have a different set of progressive rates for the portion of the income that's capital gains income that's long term capital gains income. And you could also have different rates possibly for as we saw before dividend income if they're qualified dividends. So this calculation is getting more and more complex software is going to be dependent upon in order to get it done. So if I go to the first half here and let's say we hit the drop down and we go down to the schedule D dispositions. Normally you're going to have some kind of stocks. So let's say we had we had like five shares of company a stock. We acquired it. Now I'm just going to say that I acquired it sometime prior to to to a year. So it's going to be a long term. So let's say I acquired it 0 6 15. Let's say 0 0 0. So 2000. So it's going to be definitely over. Let's just do the whole thing 0 6 15 0 0 over a year. And then we sold it sometime in the current year. So this is going to be sometime in 2000 21 0 6 15 2 2 1 the sales price. This is what we sold it for. This is a known amount. So the brokerage company doesn't have any problem telling you what you sold it for. Let's say it was 1000. There's 1500. Let's say 1500 and the cost. This is where you could have problems because this is what you purchased it for. And if there were stock splits and all that kind of stuff that took place. That's where it gets a little bit confusing. Hopefully the brokerage firm can give you that information. Let's say it was 500. And so that's the general information that that you would have. And I'm going to go back and just see the calculation there. So if I go to the schedule D then we're saying that's a long term activity long term. There's the 1500 proceeds we got but we paid 500 for it. That means the gain capital gain long term capital gain is 1000. So it's 1000 and that'll flow up to the 1040. So here we have the 1040. The 1000 is now being included in line seven as we can see here. So now we're at the 101. And and so there we have that. If I mirror that on my schedule I'd have to put in another schedule. Let's put it like right here and let's add another one. I'm going to say I want to add I'm going to double click on it and call this schedule SEH D schedule D format the entire thing right click and format this thing. I'm going to say let's format this whole worksheet currency brackets. I'm going to say no thing here reduce the decimals holding control scrolling up. And I'm going to call this schedule D capital gains. I'll just call it that. Is that good enough for the name. Is that good enough. If I say get capital gains or losses I'll just keep it there. I'm going to make the whole thing. I'm going to make the whole thing boldened. And then I'm going to open up the brackets and I'm going to say this we have the long term capital gains and then I'll add some activity so I can put long term capital gains stuff like right there if I want the detail of it which I might not put the detail I might just summarize it in this worksheet in short term. Let's do total. Let's do the totals first. Total long term capital gains in the outer column. Summing it up. Summing up the activity. And then we'll have the short term term capital gains and then we'll leave a little bit of space here which I'll probably summarize it I wouldn't enter you know so sale by sale happen here and then I'm going to say this will be total short term capital gains summarizing that in the outer column and then I might have some other capital gains you know so that aren't reported here but I'll put some space and I'll just for now say total capital gains summarizing the outer column for the total so if our if our and we might and we might have you know more detail in terms of this like I might want a sales column and a cost column for example let's actually do that let's actually I'm going to delete this for now delete let's say this is the sales cost and then gain slash loss so and let's center these center these I'm going to make them black and white making it black and white on the header and then I'll copy these and put them down here and make this black and white adding then a blue and border blue and border and then I'll add a blue and border here so I could summarize the total and then so I could say this was the sales price was 1200 or 1500 cost was 1000 the difference 1005 minus 100 and then I'm going to summarize it down here equals the sum of this the cost was 500 okay there's 1000 and then I'll do the same thing here equals the sum of these now it could get a little bit complex in terms of the matching of gains and losses we might get into more detail on this later but general idea here and then this is going to be the total which I'll sum up the outer column sum up the outer column that can give us an idea of this now that 1000 here pulling down here is going to be pulled into line one of the of the 1040 so I'm going to double click on this income line I'm going to add another schedule plus the schedule D which is feeding into it of the 1000 so there it is so there's the 101 standard deduction still at the 1250 we've got the taxable income at the 88 450 that mirrors what we have here on the form 1040 so there's the 88 450 going then to line two taxes at the 15165 so taxes at the 15165 now the confusing thing here is in that tax calculation that 1000 dollars is taxed at a different rate because it's going to be a long term capital gain if I switch this over to short term for example I go back on over here and say what if this happened what if I bought it in 2021 I bought it in 2021 and like January and then I sold it in 2021 because I'm day trading I'm day trading okay I make money I can I can see what's happening in the future and then I make money on it because I have a crystal ball so I'm going to then go to my forms and now if I go to the schedule now I can see it it moved it up to the short term so now I've got my proceeds on the short term and the cost is here we still have the 1000 dollars so if I mirror that on my forms over here I'd say okay schedule D is now in the short term down here 1500 cost 500 gain or losses down here instead of up top I still have the 1000 what's the difference well the difference doesn't really make a difference to our our net income because I still have the 101 the 125 50 the 88 450 that should mirror what's on page one here so we've got the 1000 I mean 100 000 to 1000 to 101 the 88 450 but on page two the calculation is now 15 255 so it's now it was 15 165 and now it's 15 255 why because now it's being taxed at ordinary income rates so in other words that added thousand dollars if it's taxed at ordinary income rates is taxed at our highest progressive rate which was looks like four 24 percent and if I get long term capital gains rates then it's going to be taxed at these favorable rates for long term capital gains I'll get a benefit then so so again it's kind of hard to see that in the tax calculation because it's all folded into this calculation which we're not really doing we're dependent on the software but it's kind of a big deal then for something to be categorized as capital gains or ordinary income and so on so that's going to be it that's going to be the difference now just from a logistical standpoint if you go back on over here and you had multiple kind of sales you sold another you know five shares I'm going to say five shares or let's say six shares of company B and that happened on let's say you could have had this on 0150061521 and we sold that for 2000 and the cost was 300 or something you could have multiple sales and some of them could be short term and some of them could be long term that would then pull out to schedule D that would pull out here to the to the schedule D you could also have losses that would that would be in place so you might have sold some stuff at a loss doesn't happen to me because I got a crystal ball but some people some people make bad choices sometimes so that must be must be terrible so if that happened then we're saying 0215002 let's say 071521 and let's say we sold it for 1000 and we had and we bought it for 3000 now if I go back on over that's going to those transactions are going to net out in in my calculation up top so so that's going to basically net out here so now I've got a net 3000 loss now the netting out of losses and gains when you have short term and long term and then different tax rates related to them and what if you have more losses than gains that gets kind of in the weeds and that gets into tax planning and so we'll talk more about that you know in a future presentation just doing the data input obviously the software will kind of help you figure that out and you can basically double check it with your worksheets but when you're doing planning then you're talking about okay now we got to match out the gains the losses the short term gains the long term gains and what's what if we had more losses than gains and and that can get a bit a bit confusing also just realize that if you if they sold like 400 type of things you got 400 sales instead of entering each transaction in here you might summarize this is the total of the short terms and this is the total of the long term so in our case in our case the long term we might we might tie those two together I might say okay this is this is total short term and then you know see schedule attached and attached some kind of schedule that's going to help us out and then the date I might put something like this is negative 01500 and that's going to say it's going to be various and the date I sold it is going to be negative 061521 so now I'm going to say the sales price was this 1500 plus the 1000 or 3000 and then I'm going to say that the cost was the 3500 355 I'm going to delete this third one and just delete it and then on this one I'm going to say this is the total actually the first one should have been total long term total long long term and this would be total short term and then again I might put a negative on the dates and tell them to see the attached schedule possibly so that when I go back on over to my forms then now I've got my my summary data up here for the short term and the long term I messed up my dates hold on a sec let's say this happened on 121 and so now I've got my totals for my short term and long term which should match out to my summary data in my in my 1099B and then and so that should calculate the taxes correctly because we got the correct grouping of short term and long term and then if they wanted to go into more detail they might be able to find the schedule to give the individual transactions for the more detail that could save a lot of data input time possibly