Raymond,a single taxpayer,has taxable income of $155,000 from all sources except capital gains.He has a $10,000 gain from the sale of qualified small business stock he acquired in 1995.What is the total tax saving Raymond receives because of any special treatment of his $10,000 long-term capital gain on small business stock?

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Qualified small business stock held for more than 5 years receives a special exclusion of 50% of the gain. Thus, Raymond will only be taxed on $5,000 of the $10,000 gain at the long-term capital gain rate of 15% (since his taxable income is above the 0% and 15% capital gains rate threshold). Therefore, his tax savings will be 15% of $5,000, which is $750. However, since the maximum amount of tax that can be saved through the exclusion is the greater of $10 million or 10 times the taxpayer's adjusted basis in the stock, we must also ensure that Raymond's $10,000 gain does not exceed his adjusted basis in the stock. If his adjusted basis is less than $1,000, he would only be able to save $1,000 in tax through the exclusion. However, if his adjusted basis is $1,000 or more, he would be able to save $750 in tax. Therefore, the total tax saving Raymond receives is $750.

Raymond,a Single Taxpayer,has Taxable Income of $155,000 from All Sources