Question

During 2018, your clients, Mr. and Mrs. Howell, owned the following investment assets:

Investment Assets	Date Acquired	Purchase Price	Broker’s Commission Paid at Time of Purchase
300 shares of IBM common	11/22/2015	$10,350	$100
200 shares of IBM common	4/3/2016	$43,250	$300
3,000 shares of Apple preferred	12/12/2016	$147,000	$1,300
2,100 shares of Cisco common	8/14/2017	$52,500	$550
420 Shares of Vanguard mutual fund	3/2/2018	$14,700	No load fund*

            *No commissions are charged when no load mutual funds are bought and sold.

Because of the downturn in the stock market, Mr. and Mrs. Howell decided to sell most of their stocks and mutual fund in 2018 and to reinvest in municipal bonds. The following investment assets were sold in 2018:

Investment Assets	Date Sold	Sale Price	Broker’s Commission Paid at Time of Sale
300 shares of IBM common	5/6	$13,700	$100
3,000 shares of Apple preferred	10/5	$221,400	$2,000
2,100 shares of Cisco common	8/15	$63,250	$650
451 Shares of Vanguard mutual fund	12/21	$15,700	No load fund*

*No commissions are charged when no load mutual funds are bought and sold.

The Howells’ broker issued them a Form 1099-B showing the sales proceeds net of the commissions paid. For example, the IBM sales proceeds were reported as $13,600 on the Form 1099-B they received.

In addition to the sales reflected in the table above, the Howells provided you with the following additional information concerning 2018:

The Howells received a Form 1099-B from the Vanguard mutual fund reporting a $900 long-term capital gain distribution. This distribution was reinvested in 31 additional Vanguard mutual fund shares on 6/30/2018.

In 2013, Mrs. Howell loaned $6,000 to a friend who was starting a new multilevel marketing company called LD3. The friend declared bankruptcy in 2018, and Mrs. Howell has been notified that she will not be receiving any repayment of the loan.

The Howells have a $2,300 short-term capital loss carryover and a $4,800 long-term capital loss carryover from prior years.

The Howells did not instruct their broker to sell any particular lot of IBM stock.

The Howells earned $3,000 in municipal bond interest, $3,000 in interest from corporate bonds, and $4,000 in qualified dividends.

Assume the Howells have $130,000 of wage income during the year.

a. Fill out Form 8949 and page 1 of Schedule D to compute net long-term and short-term capital gains. Then, compute the Howells’ tax liability for the year (ignoring the alternative minimum tax and any phase-out provisions) assuming they file a joint return, they have no dependents, they don’t make any special tax elections, and their itemized deductions (including investment interest expense) total $25,000. Assume that asset bases are reported to the IRS.

b.   Fill out page 2 (only through line 11) of the 1040 along with Schedule 1 to determine their tax liability.

c. Are there any tax planning recommendations related to the stock sales that you should have shared with the Howells before their decision to sell?

d.   Assume the Howells’ short-term capital loss carryover from prior years is $82,300 rather than $2,300 as indicated above. If this is the case, how much short-term and long-term capital loss carryover remains to be carried beyond 2018 to future tax years?

Answer 1

Answer b
	Wages		130000
	Interest	6000	3000
	Qualifying dividend	4000	0
	Short term capital gain	1000
	Short term capital gain bought forward	(2,300)	0
	Long term capital Gain	84900
	Long term capital Gain distribution	900
	Long term capital gain bought forward	(4,800)
	Other loss	(6,000)	75,000
	AGI		208,000
	Less Itemized deductions		25000
	Taxable Income		183,000
	We recommended that he should hold the shares of Apple preferred till next year.
	Therefore, His taxable incomes go down and save the tax.

Answer c	Wages		130000
	Interest	6000	3000
	Qualifying dividend	4000	0
	Short term capital gain	1000
	Short term capital gain bought forward	(82,300)	0
	Long term capital Gain	84900
	Long term capital Gain distribution	900
	Long term capital gain bought forward	(4,800)
	Other loss	(6,000)	75,000
	AGI		208,000
	Less Itimized deductions		25000
	Taxable Income		183,000
	In this case we carry $ 81300 loss to next year.

Answer a)	Form 8949 with schedule D
	For Short Term Profit/loss
						Adjustment, if any, to gain or loss. If you enter an amount in column (g), enter a code in column (f). See the separate instructions.
	(a) Description of property (Example: 100 sh. XYZ Co.)	Date acquired (Mo., day, yr.)	(c) Date sold or disposed of (Mo., day, yr.)	(d) Proceeds (sales price) (see instructions)	(e) Cost or other basis. See the Note below and see Column (e) in the separate instructions	(f) Code(s) from instructions	Amount of adjustment	(h) Gain or (loss). Subtract column (e) from column (d) and combine the result with column (g)
	451 Shares of vangaurd mf	3/2/2016	12/21/2016	15700	14700			1000
	Total			15700	14700			1000
	For Long Term Profit/loss
						Adjustment, if any, to gain or loss. If you enter an amount in column (g), enter a code in column (f). See the separate instructions.
	(a) Description of property (Example: 100 sh. XYZ Co.)	Date acquired (Mo., day, yr.)	(c) Date sold or disposed of (Mo., day, yr.)	(d) Proceeds (sales price) (see instructions)	(e) Cost or other basis. See the Note below and see Column (e) in the separate instructions	(f) Code(s) from instructions	Amount of adjustment	(h) Gain or (loss). Subtract column (e) from column (d) and combine the result with column (g)
	300 Shares of IBM	11/22/2013	05/06/2016	13600	10450			3150
	3000 Shares of Apple preferred	12/12/2014	10/05/2016	219400	148300			71100
	2100 Shares of Casco	8/14/2015	8/15/2016	62600	51950			10650
	Total			295600	210700			84900