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Tuesday, April 10, 2007
Lower tax with Qualified Dividends and Capital Gain Worksheet
Today I was about to mail out my state tax return and saw a blank space in my schedule D line 22. It asked if I had any qualified dividend, which we did have. I was surprised Taxcut didn’t fill in this blank for me. So I decided to follow the instruction and take a look at the worksheet myself.

Dividends are usually taxed at the marginal tax rate of your ordinary income. However, take a look at the form 1099-DIV and you may find some of them are qualified dividends, which are taxed at the tax rate of long-term capital gain (15%).

Now the good news is that some people may qualify for an even lower tax rate at 5%. Please take a look at the following to see if you qualify:
1. If you have qualified dividends or long-term capital gains;
AND
2. If your adjusted gross income (AGI) is
less than $30,650 if single or married filing separately;
or less than$61,300 if married filing jointly or qualifying widow(er);
or less than $41,050 if head of household
Then you could lower your tax with the Qualified Dividends and Capital Gain Worksheet (Page 38 of 1040 instructions) on line 44 of Federal tax form 1040.

I believe many graduate students and young fellows with lower income qualify for this. I used to be quite skeptical about usefulness of all kinds of the worksheets in 1040. This time, it really saved us hundreds of dollars in tax!

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posted by Yannick @ 5:26 PM   |

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2 Comments:
  • At April 11, 2007 at 8:08 AM, Blogger mOOm said…

    This is one reason why I don't use tax software... the main one is I don't think it will know what to do with my Australian Investments and I'll have to do that by hand anyway.

     
  • At April 11, 2007 at 9:18 AM, Blogger Yannick said…

    Yes, I was too optimistic about myself and the software and almost missed those $400. It turned out that we didn't qualify for the lower rate before taking the $5000 exemption. I guess that was the reason that the software did not get me into the worksheet.

    On the other hand, the software did generate a nice Schedule D extension worksheet automatically and classified long term and short term capital gains properly. However, it seems that the convenience sometimes can be costly because of our specific situations. I will still use it, however, will check all the blanks more carefully next year!

     
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