Answer:
Bob Katz and Sally Mander
Taxable Income for 2018:
= $78,200
Explanation:
a) Data and Calculations:
Total wages = $102,400
Gain from sale of stock = 5,200
Interest income = 100
Total income = $107,700
less total deductions = (29,500)
Taxable Income = $78,200
b) Bob Katz and Sally Mander will have taxable income of $78,200 when the appropriate rate of tax is applied and the tax liability obtained, then the $1,500 tax credit will be deducted before arriving at the tax liability due.
c) The short-term capital gain of $5,200 is taxed as ordinary income. Since it is held for less than a year, it will be included in the taxable income for that year and it follows the same tax brackets as ordinary income. On the other hand, the long-term capital gain of $13,000 will attract a tax rate of 0 percent for a taxable income of $78,200. Otherwise, it will attract a tax rate of 15 percent or 20 percent, depending on income level. This means that long-term capital gains tax rates are much lower than the ordinary income tax rate.
