Question

Assume that Joe has a marginal tax rate of 35 percent and decides to make the election to include long-term capital gains and qualified dividends as investment income. What rate must Joe use when calculating the tax on these two items?

A. 20%
B. 25%
C. 28%
D. 35%
E. None of these

Answer 1

Joe must use a tax rate of 20% when calculating the tax on long-term capital gains and qualified dividends.

When Joe makes the election to include long-term capital gains and qualified dividends as investment income, he must use a tax rate of 20% to calculate the tax on these two items. This is because the tax rate for long-term capital gains and qualified dividends is generally lower than the individual's marginal tax rate. In this case, Joe's marginal tax rate is 35%, but the rate for long-term capital gains and qualified dividends is 20%.