In: Accounting
lIn Year 1, Jeff and Kim Jenson (married filing a joint return) have $200,000 of taxable income before considering the following transactions:
a. On March 2, Year 1, they sold a painting (art) for $100,000 that was purchased 15 years ago for $90,000.
b. A $12,000 loss on 11/1, Year 1 sale of bonds (acquired on 5/12, 5 years ago);
c. A $4,000 gain on 12/12, Year 1 sale of IBM stock (acquired on 2/5, Year 1);
d. A $17,000 gain on the 10/17, Year 1 sale of rental property. Of the $17,000 gain, $8,000 is reportable as gain subject to the 25% maximum rate and the remaining $9,000 is subject to the 15% maximum rate (the property was acquired on 8/2, 6 years ago. The acquiring date was after 1986);
e. A $12,000 loss on 12/20, Year 1 sale of bonds (acquired on 1/18, Year 1);
f. A $7,000 gain on 8/27, Year 1 sale of BH stock (acquired on 7/30, 10 years ago); and
g. A $11,000 loss on 6/14, Year 1 sale of QuikCo. Stock (acquired on 3/20, 5 years ago).
1) What is the amount and character of each transaction?
2) Complete the required netting procedures and calculate the Jenson's Year 1 taxable income after considering the above transactions.
3). What is Jenson’s Year 1 additional tax liability as a result of the above transactions?
ANSWER
Ordinary Income ($) | Short Term Capital gain($) | Long term Capital Gain($)] | ||
28% | 25% | 15% | ||
Sold Painting | ||||
( Purchase$90000 and sale | 10,000 | |||
$100000 | ||||
Loss on Sale of Bond | (12,000) | |||
Gain on IBM Stock | 4,000 | |||
Sale of Rental Property | 8,000 | 9,000 | ||
Loss on Sale of Bond | (12,000) | |||
Gain on sale of BH Stock | 7,000 | |||
Loss on sale of Stock | (11,000) | |||
Total | 10,000 | (8,000) | 8,000 | (7,000) |
Set of Loss | (7,000) | (5,000) | - | |
Balance | 3,000 | - | 3,000 | - |
(3,000) | ||||
Net Balance | - | 3,000 |
Taxable Income before gain($) | 2,00,000 | |
Add: Long term capital Gain($) | 3,000 | |
Taxable Income before gain($) | 2,03,000 |
Tax on Ordinary Income | 43,892 | ( as per Working below) | ||
Tax on capital Gain(25%*3000) | 750 | |||
Total Tax liability$ | 44,642 |
Working- Slab wise | ||
Tax on Ordinary Income | Tax rate | Tax amount ($) |
Tax Liability $18450 | 10% | 1,845 |
Tax Liability $74900-18450 | 15% | 8,468 |
Tax Liability $151200-$74900 | 25% | 19,075 |
Tax Liability $20300-$151200 | 28% | 14,504 |
Tax liability ($) | 43,892 |
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