Henrich is a single taxpayer. In 2019, his taxable income is $455,000.

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.

1) His $425,000 of taxable income includes $2,000 of a long-term capital gain that is taxed at preferential rates.

2) His $425,000 of taxable income includes $55,000 of a long-term capital gain that is taxed at preferential rates.

3) Henrich has $195,000 of taxable income, which includes $50,000 of a long-term capital gain that is taxed at preferential rates. Assume his modified AGI is $210,000.

Step by step answers are given below.

Explanation:

A. All of his income is salary from his employer

Description Amount Remarks

Taxable Income (a) $425,000

Prefrentially taxed income (b) $0

Income taxed at ordinary rates (c) $425,000

Tax on c above (d) $124,469.95 = $120,529.75 + [ ($425,000 - $415,050) x 39.6%]

Tax on b above (e) $0

Total Income tax (f) $124,469.95 (d + e)

Investment Income, if any (g) $0 No Investment Income

Net Income tax payable $124,469.95

B. His $425,000 of taxable income includes $2,000 of long-term capital gain that is taxed at preferential rates

Description Amount Remarks

Taxable Income (a) $425,000

Prefrentially taxed income (b) $2,000

Income taxed at ordinary rates (c) $423,000

Tax on c above (d) $123,677.95 = $120,529.75 + [ ($423,000 - $415,050) x 39.6%]

Tax on b above (e) $400 = $2,000 x 20%, Since marginal rate is 39.6%

Total Income tax (f) $124,077.95 (d + e)

Investment Income, if any (g) $76 Since AGI exceeds $200,000, the entire Long term cap gain is subject to the 3.8% net investment income tax ($2,000 x 3.8% = $76)

Net Income tax payable $124,153.95 (f + g)

C. His $425,000 of taxable income includes $55,000 of long-term capital gain that is taxed at preferential rates

Description Amount Remarks

Taxable Income (a) $425,000

Prefrentially taxed income (b) $55,000

Income taxed at ordinary rates (c) $370,000

Tax on c above (d) $105,629.25 = $46,278.75 + [ ($370,000 - $190,150) x 33%]

Tax on b above (e) $8,747.50 Since $45,050 income would be taxed at 33% or 35% if it would be ordinary income, rest at 39.6% i. e. [ ($45,050 x 15%) + ($9,950 x 20%) ]

Total Income tax (f) $114,376.75 (d + e)

Investment Income, if any (g) $2,090 Since AGI exceeds $200,000, the entire Long term cap gain is subject to the 3.8% net investment income tax ($55,000 x 3.8% = $2,090)

Net Income tax payable $116,466.75 (f + g)

D. Henrich has $195,000 of taxable income, which includes $50,000 of long-term capital gain that is taxed at preferential rates. Assume his modified AGI is $210,000

Description Amount Remarks

Taxable Income (a) $195,000

Prefrentially taxed income (b) $50,000

Income taxed at ordinary rates (c) $145,000

Tax on c above (d) $33,636.75 = $18,558.75 + [ ($145,000 - $91,150) x 28%]

Tax on b above (e) $7,500.00 = $50,000 x 15%

Total Income tax (f) $41,136.75 (d + e)

Investment Income, if any (g) $380 Only $10,000 is taxed at 3.8%, only ($210,000 - $200,000) i. e. $10,000

Net Income tax payable $41,516.75 (f + g)