In 2008, the tax schedule for a single taxpayer is as follows: The tax rate for capital gains and dividend income is 15% for investors in marginal tax brackets greater than 15%. Paul invested $10,000 in the stock market and $10,000 in bonds. During the
Year Paul earned $1,000 in dividends and $900 in interest income from these investments. If
Paul is in the 28% marginal tax bracket, what was his tax obligation on the income from his
Portfolio?

Question

In 2008, the tax schedule for a single taxpayer is as follows:  The tax rate for capital gains and dividend income is 15% for investors in marginal tax brackets greater than 15%. Paul invested $10,000 in the stock market and $10,000 in bonds. During the
Year Paul earned $1,000 in dividends and $900 in interest income from these investments. If
Paul is in the 28% marginal tax bracket, what was his tax obligation on the income from his
Portfolio?

Quizplus · Accepted Answer

First, we need to calculate Paul's taxable income.

Dividend income = $1,000 
Interest income = $900 
Capital gains = ($10,000 - $10,000) = $0

Total income = $1,000 + $900 + $0 = $1,900

Next, we need to determine which portion of Paul's income is taxed at a higher rate. Since Paul is in the 28% marginal tax bracket and the tax rate for capital gains and dividend income is 15% for investors in marginal tax brackets greater than 15%, we know that Paul's dividend income will be taxed at a higher rate.

Dividend income = $1,000 
Capital gains rate = 15% 
Tax on dividend income = $1,000 x 15% = $150

Now, we can calculate Paul's total tax obligation.

Tax on interest income = $900 x 28% = $252 
Tax on dividend income = $150 
Total tax obligation = $252 + $150 = $402

Therefore, the correct answer is C) $402.

In 2008, the Tax Schedule for a Single Taxpayer Is