Sara is filing as head of household and has 2010 taxable income of $27,000 which includes $13,000 of net long-tem capital gain.The net long-term capital gain is made up of $10,000 25% gain and $3,000 0%/15% gain.What is the tax on her taxable income using the alternative tax method?

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Under the alternative tax method, Sara's taxable income is recalculated by adding her long-term capital gains to her regular taxable income and then applying the alternative tax rates. The recalculated taxable income would be $37,000 ($27,000 + $10,000), which falls in the 25% tax bracket. Therefore, the tax on her long-term capital gains would be $3,000 (25% of $10,000) for the 25% gain and $0 for the 0%/15% gain. The tax on her regular taxable income would be $4,003 using the alternative tax rates. So the total tax would be $7,003 ($3,000 from the long-term capital gain + $4,003 from regular taxable income).

Sara Is Filing as Head of Household and Has 2010