Question

Matt and Meg Comer are married and file a joint tax return. They do not have any children. Matt works as a history professor at a local university and earns a salary of $68,400. Meg works part time at the same university. She earns $33,400 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). (Use the tax rate schedules,Dividends and Capital Gains Tax Rates.) (Round your final answers to the nearest whole dollar amount.)

a. What is the Comers’ tax liability for 2020 if they report the following capital gains and losses for the year?

b. What is the Comers’ tax liability for 2020 if they report the following capital gains and losses for the year?

Short-term capital gains	$	9,400
Short-term capital losses		(2,400)
Long-term capital gains		15,400
Long-term capital losses		(6,400)

Answer 1

Req. 1

Total Tax Liability

$ 11,410

Explanation:

1)

Salary ( $68,400 + 33,400)	$ 101,800
Net Short Term Capital Gain ( $9400-$2400)	$7000
Net Long Term Capital Gain ( $15,400- $6400)	$9000
AGI	$117,800
Less: Standard Deduction	(24,800)
Taxable Income	$93,000
Less: Preferentially Taxed Income	($9000)
Income Taxed at ordinary rates	$84,000
Income taxed at capital gain rates	$9000

2) Income Tax at ordinary Rates:( tax on $84,000)

Tax schedule:

$80,251 to $171,050 = $9,235 plus 22% of the amount over $80,250

3) Tax Liability:

= $ 9,235 + ($84,000 - $ 80,250)×22%

= $ 9235 + $825

= $ 10,060

4) Tax on Capital Gain:( tax on $9000)

= $9000× 15%

= $ 1350

5) Total Tax Liability:

= $ 10,060 + $ 1350

= $ 11,410

Note:

Capital Gain Tax rate:

0%	$0 to $80,000
15%	$80,001 to $496,600
20%	$496,601 or more