Question

The class is "Individual Taxation". I have the following questions:
Q. Steve and Cindy, both under age 65, file a joint tax return for 2018 reporting the following information:

-Salary income $56,000
-Interest income $4,000
-Qualified dividend income $32,000
-Capital gain from sale of investment land held 10 years $190,000
-Capital loss from sale of stock held 11 months ($8,000)
-Itemized expenses $18,600
Compute the couple's regular taxable income and their regular tax liability using the applicable tax rates for their ordinary income and any alternative rates for other qualifying income.

Answer 1

Computation of the couple's regular taxable income :

Description	Details($)	Amount($)
Salary		56,000
Interest income		4,000
Qualified dividend income		32,000
Long term capital gain from sale of land	190,000
Less: short term capital loss from sale of stock	8,000
Net capital gain		182,000
Taxable income before itemised deduction		274,000
Less: itemised expenses		18,600
Taxable income		255,400

Computation of tax liability:

Since the taxable income falls in the 24% tax bracket, the tax rate on net capital gain is 15%

Therefore tax on net capital gain = $182,000* 15% = $27,300

Qualified dividends as per IRS are taxed at capital gain tax rates

Therefore tax on qualified dividend = $ 32,000 * 15% = $4,800

Balance taxable income = Total taxable income - capital gain - qualified dividend

= 255,400-182,000-32000

= $41,400

Tax on $ 19050 = 19050 *10% = $1905

Tax on balance $ 22350 = 22350 * 12% = $ 2682

Therefore total tax on balance income as per slab rates = 1905+2682= $ 4,587

Therefore total tax liability = capital gain tax + tax on qualified dividends + tax on balance taxable income

= 27300+4800+4587

=$36,687