Question
In: Accounting
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
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