4. Paying taxes on stocks

What does it mean to invest in stocks?

Common stock is considered to be one of the most popular investment vehicles for long-term wealth building. Investors earn income from common stock in the form of dividends and/or capital gains. As an investor it is important to understand the implications of investing in stocks from a tax perspective.

Calculating taxes owed on Edisons investment

Two years ago, Edison purchased 100 shares of a particular companys stock at a price of $66.85 per share. Last year, Edison received an annual dividend of $1.10 per share, and at the end of the year, a share of stock was trading at $69.88 per share. This year, Edison received an annual dividend of $1.21 per share and at the end of the year sold all 100 shares at a price of $80.09 per share.

In the first column of the following table, enter the total annual dividends Edison received each year, as well as the total capital gains at the end of each year.

Suppose Edison is in the 32% tax bracket.

Compute the taxes Edison pays each year on dividends and capital gains from this investment by completing the second column in the table.

Note: Throughout this problem, please round your answers to the nearest cent.

		Amount	Taxes Owed
Year 1	Dividends:	$	$
	Capital Gains:	$	$
Year 2	Dividends:	$	$
	Capital Gains:	$	$

The total amount of investment income (pre-taxes) that Edison earned on this investment over the course of 2 years is $_________________

.The total amount that Edison pays in taxes on income from this investment income is $___________________