Question

Quantitative Problem: Jenna is a single taxpayer. During 2018, she earned wages of $113,000. She doesn't itemize deductions, so she will take the standard deduction to calculate 2018 taxable income. In addition, during the year she sold common stock that she had owned for five years for a net profit of $5,200. How much does Jenna owe to the IRS for taxes

Answer 1

Solution :

Item                                                 Amount

Income                                             $113,000

Personal exemption for one             $ 4,050

Standard deduction                          $ 6,350

Taxable income                                $102,600

Therefore the taxable income is $102,600.

Now the tax payable on the taxable income is given by :

Marginal tax rate                            Amount brackets

10%                                                   $0 - $ 9,325

15%                                                   $ 9,326 - $ 37,950

25%                                                 $ 37,951 -$ 91,900

28%                                                  $ 91,901 - $ 191,650

Now according to the above taxable slab, the amount of tax on the wages earned by Jenna is :    

Tax payable = $= (0.1 \times 9325)+(0.15 \times (37950 - 9325))+(0.25 \times (91900 - 37950))+(0.28 \times (102600-91900))$$= (0.1 \times 9325)+(0.15 \times 28625)+(0.25 \times 53950)+(0.28 \times 10700)$

= 932.5 + 4293.75 + 13487.50 + 2996

= $ 21,709.75

There is also a long term capital gain of $ 5,200 that is earned by selling the common stock.

Now as per IRS, the capital gain of a long term tax percentage for an individual single filer is in 28% tax slab category is 15%.

Therefore the tax on the capital gain of $ 5,200 is  =  0.15 x 5200

                                                                               = $780

Thus the total tax payable by Jenna is  =  $ 21,709.75 + $ 780

                                                             = $ 22,489.75