Question

Ms. E, a single individual, had $115,000 taxable income. Assume the taxable year is 2017. Compute...

Ms. E, a single individual, had $115,000 taxable income. Assume the taxable year is 2017. Compute her income tax assuming that:

a. Taxable income includes no capital gain.

b. Taxable income includes $22,000 capital gain eligible for the 15 percent preferential rate.

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Answer #1

(a) Taxable income includes no capital gain :-

Taxable income = $115,000

2017 tax bracket applicable = $91,900 to $191,650

Tax to be paid = $18,713.75 + (28% x excess over 91,900)

= $18,713.75 + 28% x (115,000 - 91,900)

= $18,713.75 + $6,468

= $25,181.75

(b) Taxable income includes capital gain :-

taxable income = 115,000

Capital gain = $22,000

Taxable income excluding capital gain = 115,000 - 22,000 = $93,000

Tax bracket for $93,000 income = $91,900 to $191,650

Tax = $18,713.75 + 28% (93,000 - 91,900)

= $18,713.75 + $308

= $19,021.75

Tax on capital gain = 22,000 x 15% = $3,300

Total tax = $19,021.75 + $3,300

= $22,321.75

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