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.)

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	)

Answer 1

Solution

Particulars	Amount ($)
Salary	85,000
Add: Net short-term capital gain (Short term capital gains – Short term capital losses i.e. $ 9,000 -$ 2,000)	7,000
Add: Net long-term capital gain (Long term capital gains – long-term capital losses i.e. $ 15,000 -$ 6,000)	9,000
Adjusted Gross Income	101,000
Less: Standard deduction	(12,200)
Less: Personal exemption	(7,800)
Taxable income	81,000
Less: Preferentially taxed income	(9,000)
Income taxed at ordinary rates	72,000

Tax = $ 1,785 + $ 7,691 = $ 9,476

Income subject to capital gains rates $9,000: Tax ($9,000× 0%) = $0

Total tax liability = $9,476+ $0 = $9,476