Chip, a single individual has two sales of stock during the current year. The first sale produces a short-term loss of $10,000 and the second sale results in a long-term gain of $40,000. Chip's taxable income without considering the gain is $150,000. Chip's stock transactions will increase his income tax liability by:
A)$3,000
B)$4,500
C)$6,600
D)$7,200
E)$9,000

Question

Quizplus · Accepted Answer

The short-term loss of $10,000 can offset the long-term gain of $40,000, resulting in a net long-term gain of $30,000. Given Chip's taxable income of $150,000, he falls into the 15% long-term capital gains tax bracket. Therefore, the increase in his income tax liability due to the stock transactions is 15% of $30,000, which equals $4,500.

Chip, a Single Individual Has Two Sales of Stock During