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)
<u>Explanation:</u>
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.
