Question

Erica owned stock that increased in value by $20,000 during the year. She sold this stock and also received $2,000 in qualified dividends before she sold the stock. She also earned a $50,000 salary from which she received 41,000 in cash because $9,000 of taxes were withheld ($5,000 federal, 1,000 state, and $3,000 social security). Erica saved $30,000 of her net salary and used the other $11,000 to make charitable contributions which qualified as itemized deductions. Erica’s filing status is single. Given these facts, how much is Erica’s taxable income for 2019?

Answer 1

Erica's Computation of Income for 2019 -

Income from Salary - $50,000

Income from Capital Gain from sale of Stock - $20,000

Income from Other Sources (Dividend)- $2000

Gross Total Income - $72000

Less- Deduction of Charitable Contribution - $11000

Net Taxable Income - $ 61,000

Following are the assumptions taken while solving the above question -

1. Dividend Income is treated as taxable, as the information in this regard has not been provided in the question.
2. The Information regarding tax slab has not been provided in the question, so I am unable to calculate tax on taxable Income. The withheld tax of $9000 needs to be deducted from the tax payable.
3. Increased value of stock treated as Capital Gain in the Computation of Income.