Question

Rita has a taxable income of $85,000. She sold stock after owning it for six months, resulting in a gain of $5,000. Calculate how much she must pay in taxes on the gain based on the provided income brackets and tax rates.

Answer 1

Rita will owe taxes on her short-term capital gains from the sale of her stock at her marginal tax rate, which is 25% based on her income of $85,000. Therefore, she must pay $1,250 in taxes on the gain.

Step-by-step explanation:

The taxable gain that Rita must pay taxes on from the sale of her stock, which she owned for only six months, will be treated as short-term capital gains. These are taxed at the same rate as ordinary income. To calculate her tax, we need to determine her marginal tax rate based on her taxable income of $85,000.

Assuming the tax brackets provided are current and applicable, if $9,075 to $36,900 is taxed at 15%, and from $36,900 and beyond is taxed at 25%, Rita’s income puts her in the 25% marginal tax rate bracket. Since her gain is short-term, it will be taxed at her marginal rate. Therefore, she would owe 25% of the $5,000 gain, which amounts to $1,250 in taxes on her stock gains.