Question

1. a.) An individual in the 28 percent federal income tax bracket and 15 percent long-term capital gains tax bracket bought and sold the following securities during the year:

                           Cost Basis of Stock          Proceeds of Sale

ABC                            $24,500                       $28,600

DEF                            35,400                       31,000

GHI                             31,000                       36,000

What are the taxes owed on the short-term capital gains?

b.) An individual in the 35 percent federal income tax bracket and 15 percent long-term capital gains tax bracket bought and sold the following securities during the year:

                        Cost Basis of Stock               Proceeds of Sale

ABC                       $34,600                               $28,600

DEF                         29,400                                 31,000

             GHI                          21,500                                 19,000

What are the taxes owed or saved as a result of these sales?

Answer 1

1. Since all securities are bought and sold within the year so the gains will be taxed at normal income tax rate, i.e. 28%. So tax = 28% * {gain on ABC+gain from DEF+ gain from GHI) = 0.28*{(28600-24500)+(31000-34500)+(36000-31000)}=0.28(4100-3500+5000)=0.28*5600 = 1568
2. Since all securities are bought and sold within the year so the gains will be taxed at normal income tax rate, i.e. 35%. So tax = 35% * {gain on ABC+gain from DEF+ gain from GHI) = 0.35*{(34600-28600)+(29400-31000)+(21500-19000)}=0.35(6000-1600+2500)=0.35*6900 = 2415