Question

Henrich is a single taxpayer. In 2018, his taxable income is $461,500. What is his income tax and net investment income tax liability in each of the following alternative scenarios? Use Tax Rate Schedule, Dividends and Capital Gains Tax Rates, Estates and Trusts for reference. (Do not round intermediate calculations. Round your answer to 2 decimal places. Leave no answer blank. Enter zero if applicable.)

b. His $461,500 of taxable income includes $2,000 of long-term capital gain that is taxed at preferential rates.

Income Tax
Net Investment Income Tax
Total Tax Liability

     

Answer 1

Solution:
b.)

(1) Taxable income $ 461,500
(2) Preferentially taxed income 2000
(3) Income taxed at ordinary rates 459500 (1) - (2)
(4) Tax on income taxed at ordinary rates $ 136514.50 ($459,500 - $200000) * 35% + $45689.50 (2018 tax rate schedule for Single individuals)
(5) Tax on preferentially taxed income 400.00 (2000*20%)
(6) Income tax $ 136914.5 (4) + (5)
(7) Net investment income tax 76.00 Since Henrich's modified AGI exceeds $200,000, the entire $2,000 long-term capital gain is subject to the 3.8% net investment income tax ($2,000 x 3.8% = $76).
Total income & net investment income tax $ 136990.5 (6) + (7)

Therefore,

Income tax $136914.5

Net investment income tax 76.00

Total tax liability $136990.5