Shasta has the following capital gains and losses and Qualified dividend income during the current year:
If Shasta's marginal tax rate is 33%,what is the effect of the above on her taxable income and income tax liability?
Income Tax Liability

A)$7,000 increase $1,050 increase
B)$7,000 increase $1,310 increase
C)$8,000 increase $1,590 increase
D)$7,000 increase $1,960 increase
E)$9,000 increase $1,850 increase

Question

Shasta has the following capital gains and losses and Qualified dividend income during the current year:
If Shasta's marginal tax rate is 33%,what is the effect of the above on her taxable income and income tax liability?
Income Tax Liability

A)$7,000 increase $1,050 increase 
B)$7,000 increase $1,310 increase 
C)$8,000 increase $1,590 increase 
D)$7,000 increase $1,960 increase 
E)$9,000 increase $1,850 increase

Quizplus · Accepted Answer

First, we need to calculate the total capital gains and losses:

Net short-term capital gains: $28,000
Net long-term capital gains: $12,000
Net capital losses: ($20,000)
Total capital gains and losses: $20,000

Next, we need to calculate the taxable income:

Adjusted gross income: $100,000
Capital gains and losses: $20,000
Qualified dividends: $8,000
Total income: $128,000

Now, we can calculate the income tax liability:

Ordinary income tax: ($100,000 x 0.33) = $33,000
Capital gains tax: ($12,000 x 0.15) + ($8,000 x 0.15) = $3,000
Net investment income tax: ($8,000 x 0.038) = $304
Total income tax liability: $36,304

The effect of the above on Shasta's taxable income and income tax liability is a $7,000 increase in taxable income and a $1,310 increase in income tax liability.

Shasta Has the Following Capital Gains and Losses and Qualified