Confused about tax on stock sale

Forum|Forum|3 years ago
March 29, 2023
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A few years ago I sold a car for my parents. They asked me to keep and invest the proceeds for them, which I did. One of the companies was acquired by another and their shares were automatically converted to cash in my brokerage account. (A $500 investment turned a $4200 profit for them, not bad!) They told me to keep what the taxes would be, and reinvest the rest, which I did... The shares were over a year old, so I held 15% for the taxes, the long term capital gains rate.

But when I entered the details from my brokerage account on that one item, it decreased my refund by $1600... I don't understand how this could be possible. How can a $4200 long term capitol gains profit create $1600 in taxes owed?? That's 38%! I'm guessing there is no way to "assign" this profit to my parents since it's in my name, but I'm really confused about how/what this is calculating to come up with such a drastic decrease in refund.

ThomasM125

The increase in income may have reduced credits that you were eligible for, such as an earned income or education credit. That could result in your tax increaseing by more that the 15% capital gains tax on the investment income. You need to compare your form 1040 before the investment income and after to see what is changing. Pay particular attention to Schedule 3 Additional Credits and Payments.

You can view your form 1040 and schedules 1 to 3 while working in the online version of TurboTax by following these steps: