Question

Problem 8-63 (LO 8-1) (LO 8-3) [The following information applies to the questions displayed below.] Henrich is a single taxpayer. In 2019, his taxable income is $450,000. What is his income tax and net investment income tax liability in each of the following alternative scenarios? Use Tax Rate Schedule, Dividends and Capital Gains Tax Rates for reference. (Round your answers to 2 decimal places. Leave no answer blank. Enter zero if applicable.) Problem 8-63 Part-c c. His $450,000 of taxable income includes $55,000 of long-term capital gain that is taxed at preferential rates.

Answer 1

Taxable Income	$            450,000
Less: Preferentially taxed income	$              55,000
Income taxed at ordinary rates	$            395,000
Tax on income taxed at ordinary rates (check below note 1)	$      113,443.50
Add: Tax on preferentially taxed income (check below note 2)	$          9,022.50
Income tax	$      122,466.00
Income tax	$      122,466.00
Add: Net investment income tax (modified AGI exceeds $200,000.) (55000*3.8%)	$          2,090.00
Total income & net investment income tax	$      124,556.00

Note 1

Tax on income $395,000 taxed at ordinary rates
$0 to $9,700 (9700-0)	$                9,700	10%	$          970.00
$9,701 to $39,475 (39475-9700)	$              29,775	12%	$      3,573.00
$39,476 to $84,200 (84200-39475)	$              44,725	22%	$      9,839.50
$84,201 to $160,725 (160725-84200)	$              76,525	24%	$    18,366.00
$160,726 to $204,100 (204100-160725)	$              43,375	32%	$    13,880.00
$204,101 to $510,300 (395000-204100)	$            190,900	35%	$    66,815.00
Tax on income taxed at ordinary rates			$ 113,443.50

Note 2

Total Income			$        450,000
Less: Above the $434,550			$        434,550
Taxable at the 20%			$          15,450
Preferentially taxed income			$          55,000
Less: Income taxable at the 20%			$          15,450
Income taxable at the 15%			$          39,550
Income taxable at the 20%	$15,450	20%	$      3,090.00
Income taxable at the 15%	$39,550	15%	$      5,932.50
Tax on preferentially taxed income			$      9,022.50