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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

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

$ 10,350

$ 100

200 shares of IBM common

4/3/2020

43,250

300

3,000 shares of Apple preferred

12/12/2020

147,000

1,300

2,100 shares of Cisco common

8/14/2021

52,500

550

420 shares of Vanguard mutual fund

3/2/2022

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 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

$ 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 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 $6,000 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 $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.

a-2. 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. (Use the tax rate schedules, Dividends and Capital Gains Tax Rates.)

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+

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