Question

Matt and Meg Comer are married. They do not have any children. Matt works as a history professor at a local university and earns a salary of $64,000. Meg works part-time at the same university. She earns $21,000 a year. The couple does not itemize deductions. Other than salary, the Comers’ only other source of income is from the disposition of various capital assets (mostly stocks). Assume they file a joint return. (Use the tax rate schedules.) (Round final answers to the nearest whole dollar amount.)

a. What is the Comers’ tax liability for 2017 if they report the following capital gains and losses for the year?

Short-term capital gains	$	9,000
Short-term capital losses		(2,000	)
Long-term capital gains		15,000
Long-term capital losses		(6,000	)
Total tax liability b. What is the Comers’ tax liability for 2017 if they report the following capital gains and losses for the year? Short-term capital gains $ 1,500 Short-term capital losses 0 Long-term capital gains 13,000 Long-term capital losses (10,000 ) Total tax liablity

Answer 1

a)   Calculation of Comer's tax liability for 2017 (Amount in $)

1) Salary ($64,000+$21,000)	75,000
2) Net short term capital gain ($9,000 - $2,000)	7,000
3) Net long term capital gain ($15,000 - $6,000)	9,000
4) Adjusted Gross Income (1+2+3)	91,000
5) Standard Deduction (For married filling jointly)	12,700
6) Personal Exemption (For married filling jointly) ($4,050*2)	8,100
7) Taxable Income (4-5-6)	70,200
8) Preferentially taxed income (net long term capital gain)	9,000
9) Income to be taxed at ordinary rates (7-8)	61,200

A) Income Subject to capital gain tax rates (Preferentially taxed income) = $9,000*0% = $0

B) Income tax at ordinary rates on $61,200 = ($18,650*10%)+[($61,200-$18,650)*15%]

= $1,865+$6,383 = $8,248

Total tax liability (A+B) = $0+$8,248 = $8,248

b) Calculation of Comer's tax liability for 2017 (Amount in $)

1) Salary ($64,000+$21,000)	75,000
2) Net short term capital gain ($1,500 - $0)	1,500
3) Net long term capital gain ($13,000 - $10,000)	3,000
4) Adjusted Gross Income (1+2+3)	79,500
5) Standard Deduction (For married filling jointly)	12,700
6) Personal Exemption (For married filling jointly) ($4,050*2)	8,100
7) Taxable Income (4-5-6)	58,700
8) Preferentially taxed income (net long term capital gain)	3,000
9) Income to be taxed at ordinary rates (7-8)	55,700

A) Income Subject to capital gain tax rates (Preferentially taxed income) = $3,000*0% = $0

B) Income tax at ordinary rates on $55,700 = ($18,650*10%)+[($55,700-$18,650)*15%]

= $1,865+$5,558 = $7,423

Total tax liability (A+B) = $0+$7,423 = $7,423