Question

?Rena purchased 200 shares of a? no-load stock mutual fund. During the year she received ?$1.57 per share in dividend? distributions, ?$189 in? long-term capital gain? distributions, and capital gains of ?$967 when she sold the stock after owning it eight months. What are the tax consequences of? Rena's ownership of this stock? fund? Rena is in a 28 % marginal tax bracket.

Answer 1

Capital gain within 1 year are termed as short trem capital gain and are taxed as per the tax rate on normal income slab Capital gain in more than 1 vear is termed as long term capital gain and it is taxed on the basis of normal income tax rate Tax rate on divided is also de dent on the normal income tax slab Tax rate for long term capital gain and dividends are as follows Tax rate on longTax rate on Normal Income Tax rate <15% 15%-39.6% -39.6% dividend 0% 15% 20% term Capital gain 0% 15% 20% Since inventor fall in 28% tax bracket follow Tax rate on dividends (Td Tax rate on Long term capital gains l ax rate on short term capital gains (TS will be the tax rates 15% 15% 28% (same rate as normal income is taxed)

Calculation of Tax on dividend Income Number of shares purchased Dividend Per share Dividend Income (200 1.57) Tax on dividends Income (Dividend Income * Td) S47.10 1.57 314 Calculation of Tax on long term capital gain Long term capital gain (LTCG) Tax on long term capital gain(LTCG* TI $189 28.35 Calculation of Tax on short term capital gain Short term capital gain (STCG) Tax on short term capital gain (STCG* TS)$270.76 S967 Tax on dividends income + Tax on long term capital gan t Tax on shot term capital gain 47.10+28.35+270.76 Total tax on gain from Investment Hence Tax on gain from Investment 346 21