The right-hand column of the Key Figures box details investment income, gains/losses (including loss carryforwards) and credits
We will be using the sample tax return for this example.
In this article, we will be reviewing the right-hand column of the "Key Figures" box, and includes the Tax Exempt Interest, Qualified/Ordinary Dividends, ST/LT Capital Gains, Carryforward Loss, and Credits Claimed key figures.
Click here to review the article discussing Total Income, AGI, Deductions, Taxable Income, and Total Tax key figures.
Click here to review the article discussing Filing Status, Marginal Rate, Average Rate/Effective Rate, Safe Harbor, and Tax Exempt Percentage of Income (if applicable) key figures.
- Tax Exempt Interest: Though Peter and Paula do not have any tax-exempt interest on their return, this is would indicate the total interest reported on Schedule B that was generated by tax-free investments, such as municipal bonds or municipal bond funds.
- Qualified/Ordinary Dividends: These are reported on Lines 3a and 3b of Form 1040 and report qualified and ordinary dividends, respectively. Dividends that meet the IRS’ definition of being “qualified” are taxed at the same preferential rate as long-term capital gains. Ordinary dividends are considered ordinary income and are taxed using the marginal bracket structure.
Dividend Math: Qualified dividends (Line 3a) are a subset of Ordinary dividends (Line 3b). Although qualified dividends are taxed at the preferential long-term capital gains rates, they are not backed out of the tax calculation until the "Tax" calculation made on Line 16 of Form 1040, and therefore are included in the calculated amounts for "Total Income" (Line 9), "Adjusted Gross Income" (Line 11), and "Taxable Income" (Line 15).
- Capital gains: These are reported on Line 7 of the 1040, as well as on Schedule D. Any gain or loss on a security that has been held for less than a year is considered “short-term” and is taxed as ordinary income. Assets that have been held for over a year are considered “long-term” and receive preferential tax treatment.
On Schedule D, all short-term gains/losses are netted, then all long-term gains/losses are netted, and the resulting net short-term gains/losses and net long-term gains/losses are combined to arrive at a total capital gain/loss. - Carryforward Loss: When capital losses exceed gains in a given year, taxpayers can use up to $3,000 of losses to offset ordinary income. If there are still losses beyond the $3,000 amount, those losses can be carried forward to the next year to offset gains.
- Credits claimed: this amount reflects all of the refundable and non-refundable credits claimed in the tax year. Line 21 of Form 1040 includes the child tax credit/dependent care credit (as reported on Line 19 of Form 1040), along with any credits reported on Schedule 3 (as reported on Line 20 of Form 1040). The Earned Income Credit (EIC), any Additional Child Tax Credit, the American Opportunity Credit, as well as any refundable credits from Schedule 3 (as reported on Line 31 of Form 1040) are combined on Line 32 of Form 1040.