Question

Sue, a taxpayer in the 10 percent tax bracket, purchased stock as an investment on July 11, 2015. She sold the stock on July 9, 2016, 3 days before qualifying for the long-term holding period. If Sue had waited until July 12, 2016, to sell the stock, she would have qualified for the 0 percent capital gains tax rate. Instead, the sale will now be taxed at ordinary income rates. Upon realizing this, Suehas told you that she will "fudge" the sale date up to July 12. She says to you " What's the big deal anyway? It is only 3 days." What do you say to Sue? Client letter for this one, please. Don't forget your reference!

Answer 1

Sue's tax issues

Explanation:

The stock investment that Sue had purchased on July 11, 2015 was to qualify for a 0% capital gains tax rate on July 12, 2016 but it was sold earlier before maturing. The stock investment was sold on July 9, 2016. Sue's request to forward the date of the transaction to July 12, 2016 cannot be possible because the buyer has a record indicating the exact date of the transaction that was on July 9, 2016. When making the tax returns or the recording of transactions, the entities must use same dates as the supporting documents are from the same source. Such an act can attract high penalties and fines if detected by the tax authorities (Borbely, 2018).

Reference:

Borbely, D. (2018). Limiting the distortionary impacts of transaction taxes: Scottish stamp duty after the Mirrlees Review.