Question

Henrich is a single taxpayer. In 2019, his taxable income is $458,000. What is his income tax and net investment income tax liability in each of the following alternative scenarios? Use Tax Rate Schedule, Dividends and Capital Gains Tax Rates, Estates and Trusts for reference. (Do not round intermediate calculations. Round your answers to 2 decimal places. Leave no answer blank. Enter zero if applicable.)

d. Henrich has $199,000 of taxable income, which includes $51,600 of long-term capital gain that is taxed at preferential rates. Assume his modified AGI is $210,000.

Answer 1

Req.( D)

Income Tax	$ 37,290.26
Net Investment Income Tax	$ 1960.80

Explanation:

1)

Taxable Income	$ 199,000
Less: Preferentially Taxed Income	51,600
Income Taxed at Ordinary Rates	$ 147,400

2) Tax Bracket:

24% = $84,201 to $160,725 = $14,382.50 plus 24% of the amount over $84,200

3) Income tax on ordinary income:

= $ 14,382.50 + ( $ 147,400 -84,201 × 24%)

= $ 14,382.50 + 15,167.76

= $ 29,550.26

4) Income Tax on Pref. Income:

= $ 51,600 × 15%

= $ 7740

5) Total Tax Liability:

= $ 29,550.26 + 7740

= $ 37,290.26

6) Net Investment Tax Liability:

Since Henrich’s modified AGI well exceeds $200,000, the entire $51,600 long-term capital gain is subject to the 3.8% net investment income tax.

($51,600 x 3.8% = $ 1960.80)