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The Schedule D tax worksheet calculates the tax on the taxable income by

  • first decomposing the taxable income in line 1 into lines 19, 20, 28, 31, 37 and 40,
  • then taxing on them at different tax rates of regular tax rate, 0, 0.15, 0.20, 0.25, and 0.28. The resulted taxes are in lines 42, 21, 29, 32, 38 and 41.
  • finally summing their taxes into line 43

I wonder what the amounts in lines 19, 20, 28, 31, 37 and 40 mean?

Without understanding what they represent, it is hard to understand the rationale underlying the worksheet. My purpose is to

  • understand which part of the taxable income is taxed at which tax rate, and
  • sort the different parts of the taxable income according to their tax rates, and
  • find out which parts have relative high tax rates, and which have low tax rates.

Thanks.

p.s.

Do you agree that the worksheet was written like a computer program with little readability, e.g. no suggestive names for most lines?

What are some ways for us to understand the worksheet?

  • 1
    In the US there isn't a single tax rate for all income. Long-term investment, for example, is taxed at its own rate. If you have income in these categories, you need to break them out and compute their tax separately. The instructions tell you what amounts need to go into each category to get the right result. Since this generally reduces your taxes, don't complain too loudly about the additional work. – keshlam Jan 12 '17 at 0:30
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    You misunderstood my question. My question was what the components of the taxable income represent. I am trying hard to understand the worksheet, but not complaining about it. – Tim Jan 12 '17 at 0:37
  • @Tim: I'm not sure I understand what you're saying. The components of the taxable income represent the components of your taxable income that are taxed at each rate. What other information are you looking for? – BrenBarn Jan 13 '17 at 5:00
  • @BrenBarn For example, which component is ordinary dividends, qualified dividends, long term capital gain, short term capital gain? money.stackexchange.com/questions/74714/… – Tim Jan 13 '17 at 5:05
  • @Tim: See my comment on your other question. You cannot in general assume that every piece of income that is taxed at a given rate is the same "kind" of income, nor that all income of the same "kind" will be taxed at the same rate. Different kinds of income may be lumped or split for certain purposes. – BrenBarn Jan 13 '17 at 5:18
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This worksheet is actually one of the most difficult parts of the tax code to understand.

First, I suggest you start by understanding the Qualified Dividends and Capital Gains Worksheet as the Schedule D Tax worksheet includes this worksheet. Look at this flowchart:

Qualified Dividends and Capital Gains Worksheet Flowchart (source: www.thetaxadviser.com).

Second, in addition to the regular capital gains rates, the schedule D tax worksheet adds 2 extra tax rates. The 25% rate is for depreciation recapture (or unrecapture might be more accurate), and the 28% tax rate is for collectibles (coins, art, appreciable objects).

Hope this helps shed some light. If you wanted to make a flowchart (a la the above link) I would definitely appreciate you for it!

  • Could you give a direct link to the flowchart in question, or even include it directly in the answer (if copyright permits)? Google personalizes its searches, so the "first chart" won't be the same for everyone. Search results will also change over time, and particular results may come and go. – Nate Eldredge Jan 12 '17 at 14:26
  • It would also help if you can summarize the most important points to observe in the flow chart. Otherwise this is essentially a "link-only answer", which SE discourages. – Nate Eldredge Jan 12 '17 at 14:28

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