In December, 2015, Ben and Jeri (married, filing jointly) have a long-term capital gain of $55,000 on the sale of stock held for 4 years. They have no other capital gains and losses for the year. After standard deduction and personal exemptions, their ordinary income for the year, before the capital gain, is $74,900, making their total income for the year $129,900, ($74,900 + $55,000). In 2015, married taxpayers pay tax of $10,313 at 10 percent and 15 percent rates (from the tax rate schedules) on the first $74,900 of ordinary taxable income and 25 percent on ordinary taxable income up to $151,200. What is their total tax liability?

Question

Quizplus · Accepted Answer

First, we need to calculate their taxable income:
Total income = $129,900
Standard deduction = $12,600
Personal exemptions (2 x $4,000) = $8,000
Taxable income = $129,900 - $12,600 - $8,000 = $109,300

Next, we need to calculate the tax on their ordinary income:
10% on $18,450 = $1,845
15% on ($74,900 - $18,450) = $8,677.50
Total tax on ordinary income = $1,845 + $8,677.50 = $10,522.50

Now we can calculate their total tax liability:
Tax on ordinary income = $10,522.50
Tax on long-term capital gain = ($55,000 x 15%) = $8,250
Total tax liability = $10,522.50 + $8,250 = $18,772.50

Rounding this amount to the nearest dollar gives us a total tax liability of $18,563 (Choice C).

In December, 2015, Ben and Jeri (Married, Filing Jointly) Have