Question

Eric's income puts him in the second tax bracket (15%) last year. During the same year, he earned $515 in dividends and $65 in coupons on a municipal bond. In March, he purchased a common stock for $200. He sold the same stock six months later for $915. What is the total Eric will pay in taxes on last year's investments?

Answer 1

Answer: $184.50

Step-by-step explanation:

Eric’s income puts him in the second tax bracket which has 15%, tax rate.

Eric has the following income-

Income from dividends = $515 what ch is (taxed at 15%)

Therefore; tax on dividend income = $515 * 15%

= $515 × 15/100

= $515 × 0.15

= $77.25

The Income from municipal bonds = $65 (Not taxed)

The income from sales of stock (capital gain)= $915 - $200 = $715 (This is held for less than 1 year therefore it is taxed as ordinary income at 15% tax rate)

Therefore,the tax on the short-term capital gain

= $715 * 15%

= $715 × 0.15

= $107.25

Therefore the total amount Eric will pay in taxes on last year’s investment will be:

= tax on dividend income + the tax on short-term capital gain

= $77.25 + $107.25

=$184.50