Question

Cory recently sold his qualified small business stock (acquired in 2017) for $90,000 after holding it for ten years. His basis in the stock is $40,000. Assuming his marginal tax rate is 35 percent, how much tax will he owe on the sale?

A) $3,750
B) $7,000
C) $7,500
D) $14,000
E) None of the choices are correct

Answer 1

Cory will owe $17,500 in taxes on the sale of his qualified small business stock.

Step-by-step explanation:

When Cory sells his qualified small business stock, he will owe tax on the capital gains. To calculate the tax owed, we need to determine the long-term capital gains rate. For stock held more than one year, the long-term capital gains rate is based on the taxpayer's marginal tax rate. In this case, assuming Cory's marginal tax rate is 35 percent, his tax rate on the capital gains will also be 35 percent.

To calculate the tax owed, we subtract Cory's basis in the stock ($40,000) from the selling price ($90,000), resulting in a capital gain of $50,000. Multiplying this gain by 35 percent gives us the tax owed:

$50,000 * 0.35 = $17,500

Therefore, Cory will owe $17,500 in taxes on the sale of his qualified small business stock.