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I am filing 2021 Federal Tax and got long-term capital gains (will also file Schedule D).

I calculated tax using "Qualified Dividends and Capital Gain Tax Worksheet"

How will IRS know that tax calculation is from "Qualified Dividends and Capital Gain Tax Worksheet"

Should I write it next to 1040 line 16?

Where in the IRS instructions does it mention that the IRS will know that I calculated tax using "Qualified Dividends and Capital Gain Tax Worksheet" instead of their standard schedule?

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The Schedule D instructions specify under what circumstances (based on boxes checked and/or numbers entered on certain lines) you should use the worksheet. When the IRS processes your return, if you fit those circumstances, it will check your result (i.e., the line in your filed return where you use the result of the worksheet) against its own calculation programmed to match the worksheet.

Your worksheet doesn't provide the IRS any new information (hence you don't need to include it with your return); it's just math, guiding you through a calculation from existing inputs that is more complex than the typical "add lines 20 and 21".

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  • Ok I will study Schedule D instr. Last year I had short-term capital gains for stocks I bought and sold. I calculated using worksheet but IRS said I owe taxes as if the capital gains was regular interest, i.e something you enter on Schedule B
    – Marium
    Commented Jun 19, 2022 at 17:49
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    Last year, it may have been that the IRS did not follow its own instructions. More likely, though, a 1099 form that both you and the IRS received might have been incorrect, causing the IRS to calculate things differently. Or, last, it could have been your own error. Commented Jun 19, 2022 at 20:23
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    @Marium That's because short term capital gains are taxed as ordinary income, like interest. If you want the more favorable capital gains taxation, always hold an asset for more than a year before you sell it. The main advantage for the taxpayer of tracking short term capital gains is that they can be offset by short term capital losses 1:1 so that you pay no tax on the gain. Can't do that with interest or dividends.
    – MTA
    Commented Jun 20, 2022 at 12:50
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    @Marium You must have misread or misunderstood what IRS told you about Schedule B. I won't go into details here because this is not related to nanoman's answer, but in short, just about everything you said above is not how this works.
    – void_ptr
    Commented Jun 20, 2022 at 19:20

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