Sara is filing as head of household and has 2013 taxable income of $57,000 which includes $3,000 of net long-tem capital gain.The net long-term capital gain is made up of $1,000 25% gain and $2,000 0%/15%/20% gain.What is the tax on her taxable income using the alternative tax method?

Question

Quizplus · Accepted Answer

First, we need to calculate the regular tax on Sara's taxable income. Using the 2020 tax brackets for head of household, we can calculate her regular tax as follows:

- $0 to $14,100: 10% on $14,100 - $0 = $1,410
- $14,100 to $53,700: 12% on $53,700 - $14,100 = $4,644
- $53,700 to $57,000: 22% on $57,000 - $53,700 = $924

Total regular tax = $7,978

Next, we need to calculate the alternative tax on her long-term capital gain. The $1,000 gain is taxed at 25%, while the $2,000 gain is taxed at 20%. Her alternative tax is the sum of these two taxes:

- $1,000 gain x 25% = $250
- $2,000 gain x 20% = $400

Total alternative tax = $650

Finally, we add the regular tax and the alternative tax to get her total tax liability:

Total tax liability = $7,978 + $650 = $8,628

Since $8,628 is higher than the regular tax amount, we choose the alternative tax method. However, we also need to make sure that the alternative minimum tax (AMT) does not apply. Based on the given information, we do not have enough data to determine whether or not the AMT applies, so we cannot eliminate any answer choices on that basis.

Therefore, the correct answer is D) $8,553.

Sara Is Filing as Head of Household and Has 2013