Tax – The software will determine the correct method for computing tax on the tax return. The tax cannot be adjusted from this menu. The tax calculated on the tax return will be determined using one of the following methods:
- Tax Tables
- Tax Computation Worksheet
- Schedule D Tax Worksheet
- Qualified Dividends and Capital Gains Tax Worksheet
Income Averaging for Farmers and Fisherman (Sch J) – If farm income is high in the current year and low in any of the three prior years, a farmer may qualify to lower tax by income averaging. Use Schedule J, Form 1040 to calculate the tax. Any taxpayer engaged in a farming business can use income averaging to figure tax. There is no minimum farm income requirement for income averaging, however having low farm income relative to total income may provide little benefit under the income averaging calculation.
Tax for Children Under Age 18 (8615) – This form is used to figure the tax on unearned income over $2,100 by children. The child may or may not be a dependent, and the same rules apply to step-children and legally adopted children. The form must be filed if five tests are met:
- The child had more than $2,100 of unearned income.
- The child was otherwise required to file a tax return.
- The child was either:
- under age 18 at the end of the tax year;
- age 18 at the end of the tax year and half their support or less was from earned income;
- age 19 to 23 at the end of the tax year, a full-time student, and half their support or less was from earned income.
- At least one of the child’s parents was alive at the end of the tax year.
- The child does not file a joint return for the tax year.
For more detailed information, see the instructions for Form 8814, especially for the definitions of unearned income and support.
In any case, if the child files a joint return for the tax year, or if neither of the child’s parents were alive at the end of the tax year, do not use Form 8615 to figure the child’s tax credit.
The parent may be able to elect to report the child’s interest, ordinary dividends, and capital gain distributions on the parent’s return. If the parent makes this election, the child will not have to file a return or Form 8615. However, the federal income tax on the child’s income, including qualified dividends and capital gain distributions, may be higher if this election is made.
Child’s Interest and Dividends (8814) – Parents may elect to report their child’s income on their return, but all of these tests must be met:
- The child was under age 19 (or under age 24 if a full-time student) at the end of the tax year.
- The child’s gross income is less than $10,500.
- All of the child’s income is from interest, dividends, capital gains distributions, and Alaska Permanent Fund Dividends.
- The child is not filing a joint return.
- No federal income tax was withheld on the child’s income.
- No estimated tax payments were made for the child.
- The taxpayer is the parent whose return may be used. In the case of parents filing MFS, the election can only be made on the return with the higher income.
The election is made by filing Form 8814 with the parents’ return by the due date (including extensions). A separate Form 8814 must be filed for each child.
Tax on Lump-Sum Distribution (4972) – Use Form 4972 to figure the tax on a qualified lump-sum distribution you received in the tax year using the 20% capital gain election, the 10-year tax option, or both. These are special formulas used to figure a separate tax on the distribution that may result in a smaller tax than if you reported the taxable amount of the distribution as ordinary income. You pay the tax only once, for the year you receive the distribution, not over the next 10 years. The separate tax is added to the regular tax figured on your other income. For additional information, see these IRS publications:
- Publication 575, Pension and Annuity Income (Including Simplified General Rule)
- Publication 721, Tax Guide to U.S. Civil Service Retirement Benefits
- Publication 939, General Rule for Pensions and Annuities
Tax from Recapture of an Education Credit – You may owe this tax if you claimed an education credit in an earlier year, and the taxpayer, the spouse or the dependent received either tax-free educational assistance or a refund of qualified expenses during the current year for the student. See the Form 8863 instructions for more information.
Beginning in 2018, the following additional menu items are available.
Tax Due to Making a Section 962 Election – The section 962 election is available to US taxpayers who own interest in a foreign business and who have earnings that are taxed both in the foreign locality as well as in the US, regardless of whether or not they received a dividend. Depending on the taxpayer’s situation, this election may reduce or eliminate double taxation. For more information, see Internal Revenue Bulletin 2019-09.
Tax From Form 8621 Relating to a Section 1291 Fund – Taxpayers who are shareholders in a passive foreign investment company (PFIC) may need to file Form 8621, Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund. A Section 1291 fund is an investment in which the taxpayer hasn’t made the election for the investment to be treated as a Qualifying Electing Fund (QEF). Tax calculated on Form 8621 Part V Line 16e will be entered here. See Internal Revenue Bulletin 2017-4 for more information.
Net Tax Liability Deferred from Section 965(i) – Enter here the net tax liability deferred under IRC Section 965(i). This entry is a negative number.
Triggered Deferred Net 965 Tax Liability – If the taxpayer had a triggering event under IRC Section 965(i) during the year and hasn’t entered into a transfer agreement, enter here the amount of the triggered deferred net 965 tax liability.
Qualified Business Income Deduction – See here for an overview of the QBID.