 So, notice it had to apply a whole different tax schedule. You got the progressive tax schedules and now a different tax schedule for that $1,000, which had to be at 15% because the income threshold for this individual was a single individual and they were between this range, 100,000, therefore tax them at 15%. So, you can see what it's doing, it's just trying to pick a percent where it's going to tax at a favorable rate and that happened to be the 15% in this case. So, let's go back on over now, if you were to change the scenario to say that the income was below a certain threshold of 40,000, then the rate would be zero, right? Because then 15%... Let's say there are 15% would be too high, you wouldn't get a benefit from the favorable rate for lower income individuals. So, if I change this down to their income, say wages to like 35,000 and say this is zero and now we're going to say, okay, so now we've got 35,000 and let's say that we don't have any dividends at first. Let's pull the dividends out, let's pull the dividends out to start with. No dividends, boom, 35,000 W2 income and so let's mirror that over here, 35,000, 35,000, boom and then standard deduction and that gets us to the 2350 standard deduction but I still have 36 because I still have the dividends in there, let's take the dividends out and so there we have 35, that gets us to the 2250, 2250 page 2 calculated at 2444, so now we're at the 2444, right? And then if I add the dividend income, so let's say, all right, let's add dividend income, boom, dividends, dividend, that's not dividends, what are you doing? Capital, let's just make it ordinary, so they're not qualified, so it should be taxed at the ordinary income rates, so now we added the dividends, so I'm going to say, all right, let's do that on my worksheet over here, dividends, schedule B, 1000, boom and then that pulls over to the 1040, 36,000, we should be at the 2350 and so if I go to page or the bottom of the page 2350, tax is now at the 200564, so let's say it was before 2444, now it's at 20564, no that's not right, that's quite high, it's at the 2564, where did I get the zero from? Where did that come from? That's a little bit different, slightly different number, 2564, so that's a change of 120, which means it was taxed, that extra thousand dollars was taxed at 12%, so if I went back on over here and said, okay, what's my tax rates, the ordinary rate, the highest rate is 12%, so if I then said the dividends were taxed at just a flat 15%, that would be a disincentive to invest, therefore it has to be some number that's under that, so it should be taxed at zero, so in other words if I went back on over here and said, okay, $1000 qualified dividends, now I should have the same first page except now their qualified dividends included in here, the taxable income has not changed 2350, but on page two, now we're at the 2444, which is basically what it was before because we didn't have any tax applied to it, so it had the zero rate that is being applied to it, so now we're at 2444 and it didn't tax, even though we included or increased taxable income, there's no tax, so notice the software pretty nicely and easily does that calculation for us, but when we explain this now to a client and we say, well, what's the benefit of having something in ordinary, what does that even mean, what is it doing, what is it doing, well, the government's trying to give us a tax benefit for putting money into the, I'm trying to find, they're trying to give us a tax benefit for putting money into the corporation and deal with this double taxation stuff, if they're US corporations and qualified corporations and whatnot, but you're going to see that tax benefit not in your taxable income, it'll still be included in taxable income, but it's going to apply a favorable tax rate is the general idea. Now let's make this go over the threshold, so schedule B will show up now, so I'm going to say let's go back to the other scenario, let's say that it was 100,000, back to 100,000 and let's say we had 15,000 here and then let's say that we had another dividend, let's say another dividend from a 1099 corp, corp two, corp number two and let's say this was, was 13,000 and let's say 500 of it was qualified or whatever, 500 of it was qualified. So now if I go back on over, now you're going to have on page one the amount here of the of the 1,500 are qualified portion of the total 14,000 total dividends between the two and we now have a schedule B which is going to show the the dividends over here, corporation one and corporation number two. So we've got the total dividends kind of listed out by corporation that pulls in to the first page of the form 1040. I won't run that out on our Excel because we're getting kind of, it's going kind of long. I just want to, I do want to point out on Excel though that over here you might, you might like this is pulling into the income line but you might want another column like this for the qualified portion just for your data input qualified purposes so you can kind of see it over here even though whether it's qualified or not it's going to pull over to the income line. So if there was a portion of this that was qualified I could say okay I'm just going to show that on my my form over here and I could say whatever of the thousand you know 200 was qualified or whatever the whole thing on that one was qualified. Let's see if this is spelled right. Did I spell that right? I did. Of course I did. Why am I even checking? Crying out loud. Did I spell it right? Who do you think I'm a spelling master? Anyways let's take a look at a situation where we had a capital gain situation now. So if you see something on the capital gain we'll talk about capital gains later but capital gains you usually think well that's the sale of the stocks and bonds for most people but you might see it on that 1099 div. Most data input software is going to have this box for the capital gain distributions and if I just put whatever's on the 1099 in this box like $300 then it's going to pull over not as a dividend even though it was distributed in like kind of a dividend but rather down here in the capital gain schedule D situation item. So we'll talk about capital gains more later but the general concept if you see that here would generally be you might have a question like why would that be put there because the distributions that came out were given like a dividend but they didn't come out of like the retained earnings they came out of the investments from the original issues of the stock or something like that that's why you might have like a distribution like a dividend distribution that's reported this way and being reported like a capital gain kind of situation possibly even though you didn't actually sell the stock so if you were to just plug that into the software that's that's what it will come up to. We'll talk more about the schedule Ds because that can come up to another situation where you have these capital gain rates which might be different than ordinary income rates for another similar kind of reasons. We have another kind of situation where the actual tax calculation over here usually is based on the progressive tax system based on filing status but now we have this other exception for a different whole set of progressive tax systems if we had qualified dividends and then when we get into capital gains you might have a whole nother set of tax rates and whatnot that are based on capital gains for other reasons we'll get into in another time.