Answered: Jake sold stocks shares he had owned 3…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Jake sold stocks shares he had owned 3 years. Jake is in the 35% marginal tax bracket and his capital gains from this sale were $28,998. How much tax would jake owe on those gains?

Definition Definition Tax imposed by the government on the "gain" or increase in the value of an asset at the time of its sale by the owner. Capital gain is computed based on the purchase price and sale price of the asset. If the sale price of the asset is more than the purchase price, there is a gain on the sale of asset. A tax is imposed on such gain in accordance with the applicable tax rates at the time of sale.

Expert Solution

Step 1

Capital gain is of two different types which are long-term and short-term. The long-term gain arises from selling the asset which was held for more than a year. The gain is the difference between the tax basis of the asset and the selling price. The tax on long-term gain will be zero if the taxpayer has lower marginal tax rates.