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Samuel Jenkins made two investments; the first was 13 months ago and the second was two months ago. He just sold both investments and has a capital gain of $3,000 on each. If Samuel is single and has taxable income of $40,000, what will be the amount of capital gains tax on each investment?

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roundadworthy

Answer:

Amount of tax of the $ 3,000 long-term capital gain = $ 450

Amount of tax of the $ 3,000 short-term capital gain = $ 349.50

Step-by-step explanation:

A. Investment made 13 months ago:

The Tax Rate for long-term capital gains for a single that has a taxable income of $ 40,000 is 15%; in consequence, the capital gains tax amount is:

3,000 * 0.15 = $ 450

B. Investment made 2 months ago:

The profit on an asset sold after less than a year of ownership is generally treated for tax purposes as if it were wages or salary. You're taxed on the short-term capital gain at the same rate as for your regular earnings.

Let's calculate the tax rate, using the brackets for a single that has a taxable income of $ 40,000 in 2019, this way:

  • From $ 0 to $ 9,700 = 10%
  • From $ 9,701 to $ 39,475 = 12%
  • From $ 39.476 to $ 84,200 = 22%

in consequence,

  • For first bracket : 9,700 * 0.1 = $ 970
  • For second bracket: 29,775 * 0.12 = $ 3,573
  • We calculate the second bracket amount: 39,475 - 9,700 = 29,775
  • For third bracket: 525 * 0.22 = $ 115.50
  • We calculate the third bracket amount: 40,000 - 39.475 = 525
  • Total tax = 970 + 3,573 + 115.50
  • Total tax = $ 4,658.50

Percentage of tax for regular earnings = 4,658.50/40,000 * 100

Percentage of tax for regular earnings = 0.1165 * 100 = 11.65%

Amount of tax of the $ 3,000 short-term capital gain = 3,000 * 0.1165

Amount of tax of the $ 3,000 short-term capital gain = $ 349.50

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