2. Preferential Rates Income: Determine the taxpayer’s income tax liability for 2020 for each of the...

2. Preferential Rates Income: Determine the taxpayer’s income tax liability for 2020 for each of the scenarios.

a. Henrich is married to Sally and their taxable income is $81,000. Included in their taxable income is $1,500 of long-term capital gains.

b. Henrich is married to Sally and their taxable income is $81,000. Included in their taxable income is $10,000 of long-term capital gains.

c. Henrich is single but provides all of the support for his 10 year-old son. His taxable income is $512,000, which includes $16,000 of qualified dividends

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Expert Solution

Federal Income Tax Bracket for 2020 (filing deadline: April 15, 2021)

Long-term capital gains tax rates for the 2020 tax year

FILING STATUS	0% RATE	15% RATE	20% RATE
Single	Up to $40,000	$40,001 – $441,450	Over $441,450
Married filing jointly	Up to $80,000	$80,001 – $496,600	Over $496,600
Married filing separately	Up to $40,000	$40,001 – $248,300	Over $248,300
Head of household	Up to $53,600	$53,601 – $469,050	Over $469,050

Taxable income in case a and b is 81,000. Thus, the couple will fall under 15% long term capital gain tax bracket.

a) tax on long term capital gains = 15% x 1500 = $225

Tax on normal income ( 81000 - 1500 = 79500)

tax on 1st 19750 @ 10% = 19750 x 10% = 1975

tax on next 79500 - 19750 = 59750 is 59750 x 12% = 7170

Total = 1975 + 7170 + 225 = $9370

b) tax on long term capital gains = 15% x 10000 = $1500

Tax on normal income ( 81000 - 10000 = 71000)

tax on 1st 19750 @ 10% = 19750 x 10% = 1975

tax on next 71000 - 19750 = 51250 is 51250 x 12% = 6150

Total = 1975 + 6150 + 1500 = $9625

c) Henrich is a head of household in this case.

If your taxable income is...	The tax rate on qualified dividends is...
*Nonqualified dividends are taxed as ordinary income according to federal income tax brackets.
$0 to $52,750	0%
$52,751 to $461,700	15%
$461,701 or more	20%

ekkarill92 answered 3 months ago

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