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In: Accounting
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
Explain/Show your Work
Solutions
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% |
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