Comprehensive Problem 07-63 (LO 07-1, LO 07-2, LO 07-3, LO 07-4) (Algo)

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During 2022, your clients, Mr. and Mrs. Howell, owned the following investment assets:

Investment Assets	Date Acquired	Purchase Price	Broker's Commission Paid at Time of Purchase
300 shares of IBM common	11/22/2019	$ 10,560	$ 100
200 shares of IBM common	4/3/2020	43,460	300
3,000 shares of Apple preferred	12/12/2020	168,000	1,300
2,100 shares of Cisco common	8/14/2021	54,600	550
420 shares of Vanguard mutual fund	3/2/2022	16,800	No-load fund*

*No commissions are charged when no-load mutual funds are bought and sold.

Because of the downturn in the stock market, Mr. and Mrs. Howell decided to sell most of their stocks and the mutual fund in 2022 and to reinvest in municipal bonds. The following investment assets were sold in 2022:

Investment Assets	Date Sold	Sale Price	Broker's Commission Paid at Time of Sale
300 shares of IBM common	5/6	$ 15,800	$ 100
3,000 shares of Apple preferred	10/5	223,500	2,000
2,100 shares of Cisco common	8/15	63,460	650
451 shares of Vanguard mutual fund	12/21	17,800	No-load fund*

*No commissions are charged when no-load mutual funds are bought and sold.

The Howells' broker issued them a Form 1099-B showing the sales proceeds net of the commissions paid. For example, the IBM sales proceeds were reported as $15,700 on the Form 1099-B they received.

In addition to the sales reflected in the table above, the Howells provided you with the following additional information concerning 2022:

• The Howells received a Form 1099-B from the Vanguard mutual fund reporting a $900 long-term capital gain distribution. This distribution was reinvested in 31 additional Vanguard mutual fund shares on 6/30/2022.
• In 2016, Mrs. Howell loaned $8,100 to a friend who was starting a new multilevel marketing company called LD3. The friend declared bankruptcy in 2022, and Mrs. Howell has been notified she will not be receiving any repayment of the loan.
• The Howells have a $4,400 short-term capital loss carryover and a $6,900 long-term capital loss carryover from prior years.
• The Howells did not instruct their broker to sell any particular lot of IBM stock.
• The Howells earned $4,050 in municipal bond interest, $4,050 in interest from corporate bonds, and $6,100 in qualified dividends.
• Assume the Howells have $182,500 of wage income during the year.

Comprehensive Problem 07-63 Part a (Algo)

a. Use Form 8949 and page 1 of Schedule D to compute net long-term and short-term capital gains. Then, compute the Howells' tax liability for the year (ignoring the alternative minimum tax and any phase-out provisions) assuming they file a joint return, they have no dependents, they don't make any special tax elections, and their itemized deductions total $30,000. Assume that asset bases are reported to the IRS. (Use the tax rate schedules, Dividends and Capital Gains Tax Rates.)

Mr. Howell social security number: 412-34-5670

Note: Negative amounts should be indicated by a minus sign. Use 2022 tax rules regardless of year on tax form.

2022 Tax Rate Schedules

IndividualsSchedule X-Single

If taxable income is over:	But not over:	The tax is:
$ 0	$ 10,275	10% of taxable income
$ 10,275	$ 41,775	$1,027.50 plus 12% of the excess over $10,275
$ 41,775	$ 89,075	$4,807.50 plus 22% of the excess over $41,775
$ 89,075	$ 170,050	$15,213.50 plus 24% of the excess over $89,075
$ 170,050	$ 215,950	$34,647.50 plus 32% of the excess over $170,050
$ 215,950	$ 539,900	$49,335.50 plus 35% of the excess over $215,950
$ 539,900		$162,718 plus 37% of the excess over $539,900

Schedule Y-1-Married Filing Jointly or Qualifying Widow(er)

If taxable income is over:	But not over:	The tax is:
$ 0	$ 20,550	10% of taxable income
$ 20,550	$ 83,550	$2,055 plus 12% of the excess over $20,550
$ 83,550	$ 178,150	$9,615 plus 22% of the excess over $83,550
$ 178,150	$ 340,100	$30,427 plus 24% of the excess over $178,150
$ 340,100	$ 431,900	$69,295 plus 32% of the excess over $340,100
$ 431,900	$ 647,850	$98,671 plus 35% of the excess over $431,900
$ 647,850		$174,253.50 plus 37% of the excess over $647,850

Schedule Z-Head of Household

If taxable income is over:	But not over:	The tax is:
$ 0	$ 14,650	10% of taxable income
$ 14,650	$ 55,900	$1,465 plus 12% of the excess over $14,650
$ 55,900	$ 89,050	$6,415 plus 22% of the excess over $55,900
$ 89,050	$ 170,050	$13,708 plus 24% of the excess over $89,050
$ 170,050	$ 215,950	$33,148 plus 32% of the excess over $170,050
$ 215,950	$ 539,900	$47,836 plus 35% of the excess over $215,950
$ 539,900		$161,218.50 plus 37% of the excess over $539,900

Schedule Y-2-Married Filing Separately

If taxable income is over:	But not over:	The tax is:
$ 0	$ 10,275	10% of taxable income
$ 10,275	$ 41,775	$1,027.50 plus 12% of the excess over $10,275
$ 41,775	$ 89,075	$4,807.50 plus 22% of the excess over $41,775
$ 89,075	$ 170,050	$15,213.50 plus 24% of the excess over $89,075
$ 170,050	$ 215,950	$34,647.50 plus 32% of the excess over $170,050
$ 215,950	$ 323,925	$49,335.50 plus 35% of the excess over $215,950
$ 323,925		$87,126.75 plus 37% of the excess over $323,925

Tax Rates for Net Capital Gains and Qualified Dividends

Rate*	Taxable Income
	Married Filing Jointly	Married Filing Separately	Single	Head of Household	Trusts and Estates
0%	$0 - $83,350	$0 - $41,675	$0 - $41,675	$0 - $55,800	$0 - $2,800
15%	$83,351 - $517,200	$41,676 - $258,600	$41,676 - $459,750	$55,801 - $488,500	$2,801 - $13,700
20%	$517,201+	$258,601+	$459,751+	$488,501+	$13,701+

*This rate applies to the net capital gains and qualified dividends that fall within the range of taxable income specified in the table (net capital gains and qualified dividends are included in taxable income last for this purpose).

c. Assume the Howells' short-term capital loss carryover from prior years is $84,400 rather than $4,400 as indicated above. If this is the case, how much short-term and long-term capital loss carryover remains to be carried beyond 2022 to future tax years?

Note: Leave no cells blank - be certain to enter "0" wherever required.

orm 8949 Page 1 and 2. Form 8949 Page 1 and 2. Form 8949(2021) Attachment Sequence No. 12A Page 2 Name(s) shown on return. Name and SSN or taxpayer identification no. not required if shown on other side. Social security number or taxpayer identification number Before you check Box D, E, or F below, see whether you received any Form(s) 1099-B or substitute statement(s) from your broker. A substitute statement will have the same information as Form 1099-B. Either will show whether your basis (usually your cost) was reported to the IRS by your broker and may even tell you which box to check. Par You must check Box D, E, or F below. Check only one box. If more than one box applies for your long-term transactions, complete a separate Form 8949, page 2, for each applicable box. If you have more long-term transactions than will fit on this page for one or more of the boxes, complete as many forms with the same box checked as you need. (D) Long-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS (see Note above) (E) Long-term transactions reported on Form(s) 1099-B showing basis wasn't reported to the IRS See Column (g) in the separate instructions for how to figure the amount of the adjustment. THIS FORM IS A SIMULATION OF AN OFFICIAL U.S. TAX FORM. IT IS NOT THE OFFICIAL FORM ITSELF. DO NOT USE THIS FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL. (C) 2022 McGraw-Hill Education. Form 8949 (2022) Schedule D. If "Yes," attach Form 8949 and see its instructions for additional requirements for reporting your gain or loss. THIS FORM IS A SIMULATION OF AN OFFICIAL U.S. TAX FORM. IT IS NOT THE OFFICIAL FORM ITSELF. DO NOT USE THIS FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL 2022 McGraw-Hill EdUcation. orm 8949 Page 1 and 2. Form 8949 Page 1 and 2. Form 8949(2021) Attachment Sequence No. 12A Page 2 Name(s) shown on return. Name and SSN or taxpayer identification no. not required if shown on other side. Social security number or taxpayer identification number Before you check Box D, E, or F below, see whether you received any Form(s) 1099-B or substitute statement(s) from your broker. A substitute statement will have the same information as Form 1099-B. Either will show whether your basis (usually your cost) was reported to the IRS by your broker and may even tell you which box to check. Par You must check Box D, E, or F below. Check only one box. If more than one box applies for your long-term transactions, complete a separate Form 8949, page 2, for each applicable box. If you have more long-term transactions than will fit on this page for one or more of the boxes, complete as many forms with the same box checked as you need. (D) Long-term transactions reported on Form(s) 1099-B showing basis was reported to the IRS (see Note above) (E) Long-term transactions reported on Form(s) 1099-B showing basis wasn't reported to the IRS See Column (g) in the separate instructions for how to figure the amount of the adjustment. THIS FORM IS A SIMULATION OF AN OFFICIAL U.S. TAX FORM. IT IS NOT THE OFFICIAL FORM ITSELF. DO NOT USE THIS FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL. (C) 2022 McGraw-Hill Education. Form 8949 (2022) Schedule D. If "Yes," attach Form 8949 and see its instructions for additional requirements for reporting your gain or loss. THIS FORM IS A SIMULATION OF AN OFFICIAL U.S. TAX FORM. IT IS NOT THE OFFICIAL FORM ITSELF. DO NOT USE THIS FORM FOR TAX FILINGS OR FOR ANY PURPOSE OTHER THAN EDUCATIONAL 2022 McGraw-Hill EdUcation