Answer:
Step by step answers are given below.
Explanation:
A. All of his income is salary from his employer
Description Amount Remarks
Taxable Income (a) $425,000
Prefrentially taxed income (b) $0
Income taxed at ordinary rates ( c) $425,000
Tax on c above (d) $124,469.95 = $120,529.75 + [($425,000 - $415,050) x 39.6%]
Tax on b above ( e) $0
Total Income tax (f) $124,469.95 (d + e)
Investment Income, if any (g) $0 No Investment Income
Net Income tax payable $124,469.95
B. His $425,000 of taxable income includes $2,000 of long-term capital gain that is taxed at preferential rates
Description Amount Remarks
Taxable Income (a) $425,000
Prefrentially taxed income (b) $2,000
Income taxed at ordinary rates ( c) $423,000
Tax on c above (d) $123,677.95 = $120,529.75 + [($423,000 - $415,050) x 39.6%]
Tax on b above ( e) $400 = $2,000 x 20%, Since marginal rate is 39.6%
Total Income tax (f) $124,077.95 (d + e)
Investment Income, if any (g) $76 Since AGI exceeds $200,000, the entire Long term cap gain is subject to the 3.8% net investment income tax ($2,000 x 3.8% = $76)
Net Income tax payable $124,153.95 (f + g)
C. His $425,000 of taxable income includes $55,000 of long-term capital gain that is taxed at preferential rates
Description Amount Remarks
Taxable Income (a) $425,000
Prefrentially taxed income (b) $55,000
Income taxed at ordinary rates ( c) $370,000
Tax on c above (d) $105,629.25 = $46,278.75 + [($370,000 - $190,150) x 33%]
Tax on b above ( e) $8,747.50 Since $45,050 income would be taxed at 33% or 35% if it would be ordinary income, rest at 39.6% i.e. [($45,050 x 15%) + ($9,950 x 20%)]
Total Income tax (f) $114,376.75 (d + e)
Investment Income, if any (g) $2,090 Since AGI exceeds $200,000, the entire Long term cap gain is subject to the 3.8% net investment income tax ($55,000 x 3.8% = $2,090)
Net Income tax payable $116,466.75 (f + g)
D. Henrich has $195,000 of taxable income, which includes $50,000 of long-term capital gain that is taxed at preferential rates. Assume his modified AGI is $210,000
Description Amount Remarks
Taxable Income (a) $195,000
Prefrentially taxed income (b) $50,000
Income taxed at ordinary rates ( c) $145,000
Tax on c above (d) $33,636.75 = $18,558.75 + [($145,000 - $91,150) x 28%]
Tax on b above ( e) $7,500.00 = $50,000 x 15%
Total Income tax (f) $41,136.75 (d + e)
Investment Income, if any (g) $380 Only $10,000 is taxed at 3.8%, only ($210,000 - $200,000) i.e. $10,000
Net Income tax payable $41,516.75 (f + g)
