Joan Petros reported taxable income in 20X2 of $150,000, which included the foll

Question

Joan Petros reported taxable income in 20X2 of $150,000, which included the following transactions: In June 20X2, Joan sold 100 shares of stock for $40 per share. She had purchased them three months earlier for $28 per share. In October 20X2, Joan sold 200 shares of stock for $79 per share. She had purchased them three years earlier for $65 per share. Joan had no dividend income in 20X2. If long-term capital gains are taxed at 15% and all ordinary income is taxed at 25%, what is Joan's tax liability for 20X2?

Explanation / Answer

Long term capital gain on sale of oct 20x2 shares = Number of shares [selling price-purchase price]

     = 200[79-65]

     = 2800

short term capital gain on sale of june 20x2 shares will be taxable at ordinary tax rate

**gain on sale of shares sold within a year from date of purchase are short term in nature

shares sold after one year result in long term capital gain/(loss)

Tax amount Long term capital gain 2800*.15 420 other taxable income taxable at ordinary tax rate [150000-2800 long term gain] 147200*.25 36800 Total tax liability 37220

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