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 $ 10,580 $ 100 200 shares of IBM common 4 3 2020 43,480 300 3,000 shares of Apple preferred 12 12 2020 170,000 1,300 2,100 shares of Cisco common 8 14 2021 54,800 550 420 shares of Vanguard mutual fund 3 2 2022 17,000 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 $ 16,000 $ 100 3,000 shares of Apple preferred 10 5 223,700 2,000 2,100 shares of Cisco common 8 15 63,480 650 451 shares of Vanguard mutual fund 12 21 18,000 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 $15,900 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 $8,300 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 $4,600 short term capital loss carryover and a $7,100 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 $4,150 in municipal bond interest, $4,150 in interest from corporate bonds, and $6,300 in qualified dividends Assume the Howells have $187,500 of wage income during the year 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 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) 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 )

The Answer is in the image, click to view ...

Answered step by step

Verified Expert Solution

Link Copied!

Question

1 Approved Answer

Posted on Jul 29, 2024

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	$ 10,580	$ 100
200 shares of IBM common	4/3/2020	43,480	300
3,000 shares of Apple preferred	12/12/2020	170,000	1,300
2,100 shares of Cisco common	8/14/2021	54,800	550
420 shares of Vanguard mutual fund	3/2/2022	17,000	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	$ 16,000	$ 100
3,000 shares of Apple preferred	10/5	223,700	2,000
2,100 shares of Cisco common	8/15	63,480	650
451 shares of Vanguard mutual fund	12/21	18,000	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 $15,900 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 $8,300 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 $4,600 short-term capital loss carryover and a $7,100 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 $4,150 in municipal bond interest, $4,150 in interest from corporate bonds, and $6,300 in qualified dividends.
Assume the Howells have $187,500 of wage income during the year.

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

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).

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.)