Question

Nathan purchased 100 shares of OAK stock for $5,000 on April 1, 2021. He sold the shares on October 28, 2021 for $6,000. He has no current-year or carryover capital losses, and his only other income for the year consisted of wages. He will use the single filing status, and his 2021 taxable income is $89,500, placing him in the 24% tax bracket. What amount of tax will Nathan owe on the gain from the sale of his shares of stock?

Answer 1

Explanation:

To calculate the tax on the gain from the sale of Nathan's shares of stock, you need to determine the capital gain he made and then apply the appropriate capital gains tax rate.

1. Calculate the capital gain:

Capital Gain = Selling Price - Purchase Price

Capital Gain = $6,000 - $5,000 = $1,000

2. Determine Nathan's taxable income, including the capital gain:

Taxable Income = Wages + Capital Gain

Taxable Income = $89,500 (wages) + $1,000 (capital gain) = $90,500

3. Calculate the tax on the capital gain:

Nathan is in the 24% tax bracket.

Tax on Capital Gain = Capital Gain x Capital Gains Tax Rate

In this case, the capital gain is $1,000, and the capital gains tax rate for someone in the 24% tax bracket is typically 15%. However, if Nathan's taxable income puts him in the 15% tax bracket or lower, the capital gains tax rate may be 0%. Let's calculate it based on both scenarios:

a. If Nathan's taxable income places him in the 24% tax bracket:

Tax on Capital Gain = $1,000 x 0.15 (15%) = $150

b. If Nathan's taxable income places him in a lower tax bracket, resulting in a 0% capital gains tax rate:

Tax on Capital Gain = $1,000 x 0 (0%) = $0

Now, we have the two scenarios. Nathan will owe either $150 (if he is in the 24% bracket) or $0 (if he is in a lower tax bracket) on the gain from the sale of his shares of stock.