Question

Diana sold mutual fund shares she had owned 4 years so that she could use the proceeds to travel across Europe with her son. Diana is in the 35% marginal tax bracket and her capital gains from this sale were $30,000. How much tax would Diana owe on those gains?a. $10,500 b. $8,400 c. $6,000 d. $4,500 e. $1,500.

Answer 1

Answer: D. $4,500

Step-by-step explanation:

According to the question, Diane had owned the shares for 4 years meaning it's in the long term bracket( mutual funds held for more than one year).

Hence, investment income received on long term shares of a mutual fund are called capital gains.

Also Diane belongs to the 35% marginal tax bracket, Hence, Diane's capital gains of $30,000 will be taxed at 15%. Because taxes on capital gains are dependent on the marginal tax bracket of the individual. Individuals in the 37% tax bracket, pays 20% tax on their capital gains.

Therefore, Diane tax will be:

15% of $30,000

0.15 × $30,000 = $4,500

Answer 2

c. $6,000

Step-by-step explanation:

Diana sold mutual fund shares she had owned 4 years so that she could use the proceeds to travel across Europe with her son.

Diana is in the 35% marginal tax bracket and her capital gains from this sale were $30,000.

The amount of tax that Diana would pay on those gains is $6,000

When it comes to capital gains from mutual funds, the treatment is different because there are rates for short-term and long-term.

Short term or held for one year is 15% while long term is 20%.

Diana held her mutual funds for 4 years hence will be taxed at 20%

205 of $30,000 = $6000