David bought some shares of IBM stock at $4,000 three years ago.He just sold all...

David bought some shares of IBM stock at $4,000 three years ago. He just sold all of them for $5,000. If he is subject to a tax rate of 35%, what is the tax on this investment income?

Expert Solution

Tax is usually calculated on taxable income for eg capital gain on etc. In this case David has sold some shares which he have bought 3 years ago. So he must have earned some capital gain (investment income) and he has to pay tax on such capital gain.

To calculate tax amount we first need to calculate the investment income:

Investment Income = Sale price of the shares sold - Purchase price of the shares

= $ 5000 - $ 4000

= $ 1000

Calculation is Tax amount:

David is subject to tax rate of 35% .

Therefore tax on investment income = $ 1000 * 35 % = $ 350

jeff jeffy answered 2 years ago

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