Question

In: Accounting

Mr. and Mrs. HenryHenry file a joint return and have taxable income of $ 380,000 without...

Mr. and Mrs. HenryHenry file a joint return and have taxable income of $ 380,000 without considering the following independent fact situations.

a.	They have a STCG of $ 31,000 and a LTCL of $ 20,000
b.	They have a LTCG of $24,000 due to the sale of a collectible and a LTCG of $12,500 due to the sale of General Motors stock.
c.	Same as Part b except they also have a STCL of $4,500.

Requirement

Determine the increase in their tax liability for each independent fact situation.

Solutions

Expert Solution

Tax liability of Mr & Mrs Henry without capital gains

Taxable income = $380,000

Tax on income

$0-$19050 @10% = 19050 *10% = $1,905

$19051 - $77,400 @ 12% = 58350*12%= $7,002

$77401 - $165,000 @ 22% = 87600+22% = $19,272

$165,001 - $315,000 @ 24% = 150,000*24% = $36,000

$315,001 - $380,000 @32% = 65000 *32% = $20,800

Total Tax Liabilty =1905+7002+19272+36000+20800 =$84,979

a. In USA individuals or Companies pay US federation, CGT on net capital gains i.e., if there are gains and losses in the same year the losses are offset with gains and the net gains are taxed. If there is a loss after offset then it is allowed to deduct from other income. in the given scenario

STCG = $31,000

LTCL = ($20,000)

Net Gains = 31,000 - 20,000 =$11,000

The $11,000 net gains will arise from STCG. In USA STCG is taxed along with regular income therefore now the joint income now will be $380,000 + 11,000= $391,000

Tax Liability on $391,000 is

Tax liability of Mr & Mrs Henry without capital gains

Taxable income = $380,000

Tax on income

$0-$19050 @10% = 19050 *10% = $1,905

$19051 - $77,400 @ 12% = 58350*12%= $7,002

$77401 - $165,000 @ 22% = 87600*22% = $19,272

$165,001 - $315,000 @ 24% = 150,000*24% = $36,000

$315,001 - $391,000 @32% = 76000 *32% = $24,320

Total Tax Liability =1905+7002+19272+36000+24320 =$88,499

Increase in Tax liability = $88499- $84,979(calculated above) = $3,520

b. Tax on sale of collectables are taxed at 28% regardless of the income level of individual

LTCG on collectables = $24,000

Tax on LTCG due to collectables = $24,000*28%= $6720

LTCG has different tax rates

LTCG on sale of General Motors Stock = $12,500

Tax rate on LTCG from $0-$77,200 (married filing jointly) si 0%, so the tax liability on sale of stock is $0

Increase in Liablity =$6,720 ( tax on sale of collectables)

c All the above calculation for LTCG on sale of collectables is same tax on sale of collectables = $6,720

STCL of $4,500 is offset against LTCG of $12,500 net capital gains = 12,500-4,500 = $8,000

Tax on net LTCG = 8,000 *0% =$0

increase in tax liability = $6,720

Note: Tax rates and Tax slabs are for 2018-2019 year

ekkarill92 answered 1 year ago

Next > < Previous

Related Solutions

Mr. and Mrs. Sedlock file a joint return and have a taxable income of $370,000 without...

Mr. and Mrs. Sedlock file a joint return and have a taxable income of $370,000 without considering the following information below. Determine the increase in their tax liability for the following independent fact situations. a. They have a STCG of $20,000 and a LTCL of $12,000. b. They have a LTCG of $30,000 due to the sale of a collectible and a LTCG of $9,000 due to the sale of General Motors stock. c. Same as part b except they...

A) Mr. and Mrs. T have two young children, and file a joint return. They have...

A) Mr. and Mrs. T have two young children, and file a joint return. They have salary income of $67,000, and interest income of $400. Their itemized deductions total $8,750, and their federal income tax withheld was $2,170. Mrs. T received a cash gift of $20,000 from her aunt during the year. Compute their refund or balance due (the year is 2018). Show your calculations. B) Mr. and Mrs. V have three children, and file a joint return. They have...

Mr. and Mrs. Z, both in their late 30s, file a joint tax return. They have...

Mr. and Mrs. Z, both in their late 30s, file a joint tax return. They have one dependent child who is age 5. Mr. Z is an employee with wages = $100,000. Federal tax withholding from his paycheck = $16,000. Their itemized deductions = $30,000. Any preferential tax rate = 0%. Allowable adjustment for retirement account = $5,000. Mrs. Z runs a part-time business that she operates as a sole proprietor. This year’s information is as follows: Revenue $30,000, Cost...

Jane and Gregory are married and file a joint return. They expect to have $ 380,000...

Jane and Gregory are married and file a joint return. They expect to have $ 380,000 of taxable income in the next year and are considering whether to purchase a personal residence that would provide additional tax deductions of $ 114,000 for mortgage interest and real estate taxes. The marginal rate is ___% if the personal residence is not purchased and is ___ % if the personal residence is purchased What is the tax savings if residence is aquired? (round...

Mr. and Mrs. Daniels, age 67 and 52, file a joint tax return. They have itemized...

Mr. and Mrs. Daniels, age 67 and 52, file a joint tax return. They have itemized deductions of $25,000. They have the following information for 2019: Salaries 122,000 Interest income 6,000 Allowable adjustments 15,000 Capital gain eligible for 15% rate 3,000 Federal tax withholding from salaries 10,000 Compute their AGI, taxable income, tax liability, and federal tax refund or amount due

Mr. and Mrs. Daniels, age 67 and 52, file a joint tax return. They have itemized...

Mr. & Mrs. Gere. who are filing a joint return, have adjusted gross income of $50,000....

Mr. & Mrs. Gere. who are filing a joint return, have adjusted gross income of $50,000. During the tax year, they paid the following medical expenses for themselves and for Mr.s Gere's mother, Mrs. Watson. The Gere's claim Mrs. Wastson as a dependent. Insulin for Mr. Gere $1,000 Health Insurance premiums for Mrs. Gere $3,100 The hospital bill for Mrs. Watson $5,200 Doctor bill for Mrs. Gere $4,000 Mr. & Mrs. Gere received no reimbursement for the above expenditures. Calculate...

The Johnsons file a married, joint return. They had taxable income of $170,000 in 2020. Their...

The Johnsons file a married, joint return. They had taxable income of $170,000 in 2020. Their city tax rate is 3.876% and state tax rate is 6.21%. What was their total effective (marginal) tax rate? Assume they had $10,000 in short-term capital gains and $12,000 in long-term taxable gains. How much are their total taxes?

James and Mary are married and file a joint tax return. Together, their taxable income is...

James and Mary are married and file a joint tax return. Together, their taxable income is $80,000. How much will they pay in taxes? (Round answers to 0 decimal place, e.g. 5275.)

Charles and Joan Thompson file a joint return. In 2018, they had taxable income of $94,480...

Charles and Joan Thompson file a joint return. In 2018, they had taxable income of $94,480 and paid tax of $12,665. Charles is an advertising executive, and Joan is a college professor. During the fall 2019 semester, Joan is planning to take a leave of absence without pay. The Thompsons expect their taxable income to drop to $76,000 in 2019. They expect their 2019 tax liability will be $8,735, which will be the approximate amount of their withholding. Joan anticipates...

Subjects