Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

During 2019, your clients, Mr. and Mrs. Howell, owned the following investment assets: Investment Assets Date Acquired Purchase Price Brokers Commission Paid at Time of

During 2019, your clients, Mr. and Mrs. Howell, owned the following investment assets:

Investment Assets

Date Acquired

Purchase Price

Brokers Commission Paid at Time of Purchase

300 shares of IBM common

11/22/2016

$10,350

$100

200 shares of IBM common

4/3/2017

$43,250

$300

3,000 shares of Apple preferred

12/12/2017

$147,000

$1,300

2,100 shares of Cisco common

8/14/2018

$52,500

$550

420 Shares of Vanguard mutual fund

3/2/2019

$14,700

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 mutual fund in 2018 and to reinvest in municipal bonds. The following investment assets were sold in 2018:

Investment Assets

Date Sold

Sale Price

Brokers Commission Paid at Time of Sale

300 shares of IBM common

5/6

$13,700

$100

3,000 shares of Apple preferred

10/5

$221,400

$2,000

2,100 shares of Cisco common

8/15

$63,250

$650

451 Shares of Vanguard mutual fund

12/21

$15,700

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 $13,600 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 2018:

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 6/30/2018.

In 2013, Mrs. Howell loaned $6,000 to a friend who was starting a new multilevel marketing company called LD3. The friend declared bankruptcy in 2018, and Mrs. Howell has been notified that she will not be receiving any repayment of the loan.

The Howells have a $2,300 short-term capital loss carryover and a $4,800 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 $3,000 in municipal bond interest, $3,000 in interest from corporate bonds, and $4,000 in qualified dividends.

Assume the Howells have $130,000 of wage income during the year.

  1. Fill out 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 dont make any special tax elections, and their itemized deductions (including investment interest expense) total $25,000. Assume that asset bases are reported to the IRS.
  2. The Howells net capital gain is then included with their other income for the year in calculating their final tax liability for the year.

Description

Amount

Explanation

Wage Income

130,000

Given

Interest Income

3,000

Given

Qualified dividends

4,000

Given

Adjusted gross Income

Total Itemized Deductions

The effect of investment interest expense is already included in this number. The itemized deductions exceed the 2019 standard deduction of $24,400

Taxable Income

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

A History Of Accountancy In The United States

Authors: Gary John Previts, Barbara Dubis Merino

98th Edition

0814207286, 978-0814207284

More Books

Students also viewed these Accounting questions