When I view the 1040, why is the tax different from what is on the tax table, even though there is taxable income on the return?
Tax displays on:
- Form 1040, line 16 (Drake20 & future)
- Form 1040, line 12a (Drake19)
- Form 1040, line 11a (Drake18)
- Form 1040, line 44 (Drake17 and prior)
There are multiple reasons that a return would calculate a tax different from that on the tax tables. The return may have an alternative minimum tax rate, there may be foreign income involved, or the return may have qualified dividends and/or capital gains which may be taxed at a different rate.
Starting in Drake17, look for the Tax Computation Worksheet in the View mode of individual returns. It shows how the tax on Form 1040 was calculated.
Note: A missing date of birth on federal screen 1 may also result in the tax calculation being different than expected (or an unneeded Wks 8615). Ensure that the taxpayer and spouse both have an accurate DOB, and then review the worksheets listed below.
The tax computation could be based on any of several calculations including from the IRS tax tables, tax on capital gains, tax on recaptured education credits and/or additional tax on Section 1292 elections. If more than one of these tax rates apply, Drake Tax will use the calculation that is most advantageous for the taxpayer.
This worksheet can be produced globally, for all clients, or for a single client within data entry of the return. To produce this worksheet globally, from the main page of the software, go to Setup > Options > Form & Schedule Options tab and check the box that reads Always show tax computation worksheet.
To produce this worksheet for a single client, from data entry of the client's return, go to the Miscellaneous tab > PRNT Print Options screen. On the left side of this screen, check the Produce Tax Computation Worksheet box.
If there is no taxable income on the return, the Tax Computation Worksheet will not produce.
In addition, in view mode of the return, look for one or more of the following worksheets for a further breakdown of how the tax was calculated:
|Taxable Foreign Income
||Wks FI Tax
Occasionally, the tax shown on a return will be reported as 0, even when there is enough taxable income to anticipate a tax liability. In the example below, there is a capital gain from an asset sale, and itemized deductions, which interact to produce a return with a taxable income amount, but no tax calculated:
In this example,
- The Tax Tables (located in the back of the 1040 instructions) would indicate a tax for the amount shown, however, the tax is 0 (zero).
- The return qualifies for the capital gains tax versus regular tax in the tax tables, and worksheet Wks CG is produced. The lesser of lines 25 or 26 flows to line 27. Line 25 is zero, so line 27 is zero. That is the amount that flows the 1040.
A similar result can occur when a worksheet Wks D, Schedule D Tax, is produced. In a second example involving dividend income, Wks D is produced, and the lesser of lines 43 and 44 flows to line 45. Line 43 is zero, so line 45 is zero. That is the amount that flows to line the 1040.
In this second example, line 20 on the Schedule D in view mode indicates when the Schedule D Worksheet is produced: