Paving taxes on stocks

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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4. Paying taxes on stocks
What does it mean to invest in stocks?
Common stock is considered to be one of the most popular investment vehicles for long-term wealth building. Investors earn income from common
stock in the form of dividends and/or capital gains. As an investor it is important to understand the implications of investing in stocks from a tax
perspective.
Calculating taxes owed on Carlos's investment
Two years ago, Carlos purchased 100 shares of a particular company's stock at a price of $112.52 per share. Last year, Carlos received an annual
dividend of $1.90 per share, and at the end of the year, a share of stock was trading at $120.85 per share. This year, Carlos received an annual
dividend of $2.09 per share and at the end of the year sold all 100 shares at a price of $131.06 per share.
In the first column of the following table, enter the total annual dividends Carlos received each year, as well as the total capital gains at the end of
each year.
Suppose Carlos is in the 32% tax bracket.
Compute the taxes Carlos pays each year on dividends and capital gains from this investment by completing the second column in the table.
Note: Throughout this problem, please round your answers to the nearest cent.
Year 1
Year 2
Dividends:
Capital Gains:
Dividends:
Capital Gains:
$
$
$
Amount
$
$
$
Taxes Owed
The total amount of investment income (pre-taxes) that Carlos earned on this investment over the course of 2 years is $
The total amount that Carlos pays in taxes on income from this investment income is $
Transcribed Image Text:4. Paying taxes on stocks What does it mean to invest in stocks? Common stock is considered to be one of the most popular investment vehicles for long-term wealth building. Investors earn income from common stock in the form of dividends and/or capital gains. As an investor it is important to understand the implications of investing in stocks from a tax perspective. Calculating taxes owed on Carlos's investment Two years ago, Carlos purchased 100 shares of a particular company's stock at a price of $112.52 per share. Last year, Carlos received an annual dividend of $1.90 per share, and at the end of the year, a share of stock was trading at $120.85 per share. This year, Carlos received an annual dividend of $2.09 per share and at the end of the year sold all 100 shares at a price of $131.06 per share. In the first column of the following table, enter the total annual dividends Carlos received each year, as well as the total capital gains at the end of each year. Suppose Carlos is in the 32% tax bracket. Compute the taxes Carlos pays each year on dividends and capital gains from this investment by completing the second column in the table. Note: Throughout this problem, please round your answers to the nearest cent. Year 1 Year 2 Dividends: Capital Gains: Dividends: Capital Gains: $ $ $ Amount $ $ $ Taxes Owed The total amount of investment income (pre-taxes) that Carlos earned on this investment over the course of 2 years is $ The total amount that Carlos pays in taxes on income from this investment income is $
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