I got 378 for a, and 180 for b Chapter 3 Financial Planning Exercise 3 Calculati
ID: 2799571 • Letter: I
Question
I got 378 for a, and 180 for b
Chapter 3
Financial Planning Exercise 3
Calculating taxes on security transactions
If Olivia Garcia is single and in the 35% tax bracket, calculate the tax associated with each of the following transactions. (Use the IRS regulations for capital gains in effect in 2014.)
Treat each of the following cases as independent of the others.
She sold stock for $5,080 that she purchased for $4,000 11 months earlier. Round the answer to the nearest cent. Tax savings should be preceded by a "-" sign.
$
She sold bonds for $5,200 that she purchased for $4,000 4 years earlier. Round the answer to the nearest dollar. Tax savings should be preceded by a "-" sign.
$
She sold stock for $2,200 that she purchased for $2,500 22 months earlier. Assume this to be the only Stock in Olivia's portfolio. Round the answer to the nearest cent. Tax savings should be preceded by a "-" sign.
EXHIBIT 3.2 Capital Gains Tax Categories as of 2014 Capital gains tax rates are as low as 0 percent for low-income or as high as 28 percent for higher income levels and certain types of assets, so long as the holding period is more than 12 months. Holding period Tax Brackets/Assets Sold (2014) Tax on Capital gains Less than 12 months All (10%, 15%, 25%, 28%, 33%, 35%, and Same as ordinary income 39.6%) - any asset sold Over 12 months 10% and 15% - assets other than real estate and collectibles 0% 25%, 33%, 35%, 39.6% 15%, or 20% (later only if in 39.6% tax bracket) Sale of depreciable real estate 25% on gain up to depreciation amount Collectibles 28% all gains from collectiblesExplanation / Answer
1.
as it is less than 12 months, it will be taxed at ordinary income tax rate that is 35%..Hence, taxes=(5800-4000)*35%=630
2.
as it is more than 12 months and it falls in 2nd that is 25%,33%etc., it will be taxed at 15%..Hence, taxes=(5200-4000)*15%=180
3.
as it is more than 12 months and it falls in 2nd that is 25%,33%etc., it will be taxed at 15%..Hence, taxes =(2200-2500)*15%=-45 or 45 would be the tax savings
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