Question

Matt and Meg Comer are married and file a joint tax return. They do not have any children. Matt works as a history professor at a local university and earns a salary of $64,000. Meg works part-time at the same university. She earns $33,000 a year. The couple does not itemize deductions. Other than salary, the Comers’ only other source of income is from the disposition of various capital assets (mostly stocks). (Use the tax rate schedules, Dividends and Capital Gains Tax Rates.)

Answer 1

a) Total Tax Liability is $10,579 when

STCG=9000

STCL=(2000)

LTCG=15000

LTCL=(6000)

b) Total Tax Liability is $8504 when

STCG=1500

STCL=0

LTCG=13000

LTCL=(10,000)

Explanation:

Part a

Total Tax Liability: $10,579

1.

STCG=9000

STCL= (2000)

NET STCG= $7,000

2.

LTCG=15000

LTCL= (6000)

NET LTCG=$9,000

3.

Salary=97000

Net STCG=7000

Net LTCG=9000

AGI=$113,000

Standard Deduction=(24400)

Taxable Income=$88,600

Preferentially taxed income= (9000)

Income taxed at ordinary prices $79,600. Note that tax 9086+143=9229

Income subject to capital gains prices $9,000. Note that (tax(9000x15%)=1350)

Hence, total tax liability = 9229+1350 = 10579

Comer's taxable income ($79,600) before capital gains goes above the maximum 0% amount of $78,750. Hence, the capital gain is taxed at 15%.

part b

1.

STCG =1500

STC= 0

NET GAIN=1500  

2.

LTCG=13000

LTCL=(10000)

NET GAIN=3000

3.

Salary=97000

Net LTCG=3000

Net STCG=1500

AGI = 101,500

Std Ded (24,400)

Taxable Income= AGI-Standard Deduction

 Taxable Income=101,500-24,400

 Taxable Income=77,100

Pref Taxed Income (3000)

Income @ ordinary rates = 74100 Note that tax is 1940+6564=8504)

Income subject to capital gains rates = 3000 Note that (tax (3000x0%)=0)

Total tax liability  

  $8,504 + $0  

 $8,504

Comer's taxable income is $74,100 (before capital gains). It is below the maximum 0% amount.  Hence, $3,000 is taxed at zero percent.