Question

Mary Jarvis is a single individual who is working on filing her tax return for the previous year. She has assembled the following relevant information: She received $125,000 in salary. She received $15,500 of dividend income. She received $8,300 of interest income on Home Depot bonds. She received $23,500 from the sale of Disney stock that was purchased 2 years prior to the sale at a cost of $6,500. She received $9,500 from the sale of Google stock that was purchased 6 months prior to the sale at a cost of $4,200. Mary receives one exemption ($4,000), and she has allowable itemized deductions of $7,500. These amounts will be deducted from her gross income to determine her taxable income. Assume that her tax rates are based on Table 3.

Answer 1

Calculation of Taxable Income
1) Income from Salary is $125000
Income from Investments includes:
2) Dividend Received is $15500
3) Stock purchased is $6500 .So, the capital gain is $17000 ($23500 - $6500). As the stock is held more than one year, it is a long term capital gain.
4) Another stock has been purchased six months back at $4200 And it is sold at $9500.The Capital Gain is $5300 ($9500 - $4200)
5) The total income of the person subject to tax is $171100 ($125000 + $15500 + $8300 + $17000 + $5300)
6) As pe federal guideline, $4000 exemption is available for taxpayer and also for the dependents. Also, the itemized deduction will be $7500.
Calculation of the Taxable Income
Taxable Income = (Gross Income - Total exemption of $4000 each - Itemized Deduction)
Taxable Income = ($171100 - $4000- $7500)
	= $159600
The Taxable Income should be $159600