In December, 2016, 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 $75,300, making their total income for the year $130,300, ($75,300 + $55,000). In 2016, married taxpayers who file jointly pay tax of $10,367.50 at 10 percent and 15 percent rates (from the tax rate schedules) on the first $75,300 of ordinary taxable income and 25 percent on ordinary taxable income up to $151,900. What is their total tax liability?

Question

Quizplus · Accepted Answer

First, we need to calculate their taxable income:

$130,300 (total income) - $12,700 (standard deduction and personal exemptions) = $117,600 (taxable income)

Next, we need to calculate the tax on their ordinary income:

On the first $18,650: $18,650 x 10% = $1,865

On the next $56,650 ($75,300 - $18,650): $56,650 x 15% = $8,497.50

Total tax on ordinary income = $10,362.50

Now, we need to calculate the tax on their long-term capital gain. Since they are in the 25% tax bracket for ordinary income, their capital gain will also be taxed at 25%.

$55,000 x 25% = $13,750

Finally, we add the tax on their ordinary income and the tax on their capital gain to get their total tax liability:

$10,362.50 + $13,750 = $18,112.50

Therefore, the correct answer is C) $18,617.50 (rounded to the nearest dollar).

In December, 2016, Ben and Jeri (Married Filing Jointly) Have