AC309 Unit 5: Application Assignment – Investments
Millie is a single taxpayer and her 2018 taxable income is $181,205, calculated as follows:
Description |
Amount |
Employee wages |
133,000 |
Profit from business (Schedule C) |
15,000 |
Ordinary income from partnership (Schedule E) |
22,000 |
Interest income |
4,000 |
Ordinary dividends (total dividends = 9,000) |
2,000 |
Qualified dividends (total dividends = 9,000) |
7,000 |
Short-term capital gain |
8,200 |
Long-term capital gain |
6,900 |
Total Income – Form 1040, Line 6 |
198,100 |
Deduction for ½ of self-employment tax |
(495) |
Adjusted Gross Income – Form 1040, Line 7 |
197,605 |
Standard deduction – Form 1040, Line 8 |
(12,000) |
Qualified business income deduction – Form 1040, Line 9 |
(4,400) |
Taxable Income – Form 1040, Line 10 |
181,205 |
Ordinary Income Bracket |
Tax Calculation |
$0 - $9,525 |
10% of ordinary income |
$9,526 - $38,700 |
$952.50 plus 12% of ordinary income over $9,525 |
$38,701 - $82,500 |
$4,453.50 plus 22% of ordinary income over $38,700 |
$82,501 - $157,500 |
$14,089.50 plus 24% of ordinary income over $82,500 |
$157,501 - $200,000 |
$32,089.50 plus 32% of ordinary income over $157,500 |
$200,001 - $500,000 |
$45,689.50 plus 35% of ordinary income over $200,000 |
$500,001 or more |
$150,689.50 plus 37% of ordinary income over $500,000 |
Instructions
Taxable Income |
Ordinary Income |
Preferential Income |
181,205 |
Description |
Amount |
Tax liability – ordinary income |
|
Tax liability – preferential income |
|
2018 income tax liability (Form 1040, Line 11) |
Taxable income |
Ordinary income |
Preferential income |
181205 |
$167305 |
$13900 |
Preferential income = qualified dividends + long term capital gain = 7000+6900 = 13900
Ordinary income = total taxable income -13900 = 181205-13900 = $167305
Description |
Amount |
Tax liability – ordinary income (32089.50+(32%*(167305-157500))) |
$35227 |
Tax liability – preferential income (13900*15%) |
2085 |
2018 income tax liability (Form 1040, Line 11) |
$37312 |
As taxable income is between $38,700-$426,700, the applicable preferential tax rate is 15%
AC309 Unit 5: Application Assignment – Investments Millie is a single taxpayer and her 2018 taxable...
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