Final answer:
Matthew's long-term capital gains of $2,000 will be taxed at 15% based on his income bracket. After calculating the tax of $300, the after-tax gain is $1,700. The after-tax ROI is 17%, which is answer choice C.
Step-by-step explanation:
To calculate the tax on the $2,000 long-term capital gain that Matthew has from his investment, we need to look at his total taxable income and apply the provided qualified dividends and long-term capital gains tax rates. Since Matthew earns $75,000 per year and the 15% long-term capital gains tax rate applies to income in the bracket from $38,601 to $425,800, his $2,000 in long-term capital gains will be taxed at 15%.
To compute the tax on the investment, multiply the long-term capital gains of $2,000 by the 15% tax rate:
Investment Tax = Capital Gains × Tax Rate
Investment Tax = $2,000 × 0.15
Investment Tax = $300
Since Matthew paid $10,000 for the investment and achieved a gain of $2,000 (before tax), we use these numbers to calculate the after-tax return on investment (ROI):
After-Tax ROI = (After-Tax Gain / Investment Cost) × 100
After-Tax ROI = (($2,000 - $300) / $10,000) × 100
After-Tax ROI = ($1,700 / $10,000) × 100
After-Tax ROI = 17%
Therefore, the correct answer is C. 17%.