Theodoor had a good year in 2018 managing investments. Theodoor’s adjusted gross
ID: 2409138 • Letter: T
Question
Theodoor had a good year in 2018 managing investments. Theodoor’s adjusted gross income was
$212,000 and his taxable income was $200,000. The results of his investment activities were as follows:
Interest income from Bailey Bank
$ 4,700
Dividend income (qualifying)
5,400
Long-term capital gains
11,200
Short-term capital gains
200
How much are Theodoor’s tax on adjusted net capital gain and 3.8% tax on investment income, respectively? SHOW WORK
a. $1,680; $456 b. $2,490; $-0- c. $2,490; $456 d. $1,680; $-0-
Theodoor had a good year in 2018 managing investments. Theodoor’s adjusted gross income was
$212,000 and his taxable income was $200,000. The results of his investment activities were as follows:
Interest income from Bailey Bank
$ 4,700
Dividend income (qualifying)
5,400
Long-term capital gains
11,200
Short-term capital gains
200
Explanation / Answer
Ans is C $2,490; $456
Explanation: Adjusted net capital gain is $5400+11200 = 16600, since qualified dividend is eligible for tax rates as applicable on long term capital gain. Theodoor taxable income is $200,000 so it is coming under 33% tax rates so long term capital gain applicable will be 15%
Tax on LTCG = 16600 x 15% = $2490
Investment income tax of 3.8% is charged on smaller of MAGI over Taxable income or Net Investment income.
Here Investment income includes interest , dividends and capital gains = 21500(4700+5400+11200+200)
MAGI over taxable income = 212000-200000 = 12000
Smaller is 12000 so Investment income tax = 12000 x 3.8% = $456
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