During 2009, the Allens and the Zells both filed joint tax returns. For the tax year...

During 2009, the Allens and the Zells both filed joint tax returns. For the tax year ended December 31, 2009, the Allens’ taxable income was $130,000, and the Zells had total taxable income of $65,000.

If the Allens and the Zells have respectively $2,000 in profit from sale of a stock they purchased 2 years ago, how much will they pay in federal income taxes according to the federal income tax rates

Solutions

Expert Solution

Allens:

Filing status: MFJ

For the tax year ended December 31, 2009, the Allens’ taxable income = $130,000

Allens have $2,000 in profit from sale of a stock they purchased 2 years ago.

As holding period is 2 years, Long Term Capital Gain (LTCG) = $2,000

Hence, Ordinary income of Allens = Taxable Income - LTCG = $130,000 - $2,000 = $128,000

Federal income tax liability in 2009 for ordinary income of $128,000 = $16,700 * 10% + ($67,900 - $16,700) *15% + ($128,000 - $67,900) * 25% = $24,375

Federal income tax on capital gain = $2,000 * 15% = $300

Federal Income Tax Allens will pay = $24,375 + $300 = $24,675

Federal Income Tax Allens will pay = $24,675

Zells:

Filing status: MFJ

Zells had total taxable income = $65,000

Long Term Capital Gain (LTCG) = $2,000

Hence, Ordinary income of Zells = $65,000 - $2,000 = $63,000

Federal income tax liability in 2009 for ordinary income of $63,000 = $16,700 * 10% + ($63,000 - $16,700) * 15% =$8,615

Federal income tax on capital gain = $2,000 * 0% = $0

Federal Income Tax Zells will pay = $8,615

ekkarill92 answered 1 year ago

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