Kendra’s income put her in the top tax bracket (35%) last year. During the same year, she earned $760 in dividends and $490 in coupons on a corporate bond. Three years ago, she purchased a common stock for $835. She sold the same stock last year for $1180. What is the total Kendra will pay in taxes on last year’s investments?
My answer is $337.25
Yes it is! I'm on connexus and I just took the AQR B Stocks and Bonds quiz!
The answers, for me at least, are as follows
1. B, $210
2. A, 10.46%
3. D, Stock A and Stock B
4. D, common stock, foreign gov, U.S. treasury bond
and 5. A, $337.25
Your answer "$337.25" is correct
To calculate Kendra's total tax on last year's investments, we need to determine the taxable income from her dividends, coupons, and the gain from the sale of the stock. Let's break it down step-by-step:
1. Dividends: Kendra earned $760 in dividends. Dividends are generally taxed at a lower rate than regular income. However, since Kendra is in the top tax bracket (35%), we will assume that the dividends are also subject to this rate. Thus, the taxable income from dividends is 35% of $760 = $266.
2. Coupons: Kendra earned $490 in coupons on a corporate bond. Coupons from bonds are generally taxed as interest income, so we will consider this as part of her regular income. However, the question doesn't provide Kendra's regular income, so we cannot determine the exact taxable amount without that information. Let's assume Kendra's regular income is $50,000 for calculation purposes.
If Kendra's regular income is $50,000, the total taxable income from coupons is $490 + $50,000 = $50,490.
3. Stock sale: Kendra purchased a common stock for $835 three years ago and sold it last year for $1180. The gain from the sale is the selling price minus the purchase price. The gain on the stock sale is $1180 - $835 = $345.
4. Total taxable income: To calculate the total taxable income, we add the taxable income from dividends and the taxable gain from the stock sale:
Total taxable income = $266 + $345 + $50,490 = $50,101.
5. Total tax: Kendra's income puts her in the top tax bracket (35%), so she will be taxed at this rate on her total taxable income.
Total tax = 35% of $50,101 = $17,535.35.
Therefore, the total Kendra will pay in taxes on last year's investments is $17,535.35. It seems there was an error in your initial response.
To calculate the total tax Kendra will pay on her investments, we need to determine the taxable income generated from her dividends and coupons, as well as the capital gains from selling the common stock.
1. Dividends: Kendra earned $760 in dividends. Dividends are generally categorized as either qualified or non-qualified dividends, and each category has different tax rates. Let's assume the $760 dividends are non-qualified. Non-qualified dividends are generally taxed at the ordinary income tax rates.
Tax on dividends = Dividends * Tax rate
= $760 * 35% (top tax bracket)
= $266
2. Coupons on corporate bond: Kendra earned $490 in coupon payments from a corporate bond. Like dividends, the tax treatment of coupon payments depends on whether they are considered qualified or non-qualified. Let's assume the $490 coupons are also non-qualified, to be conservative and assume a higher tax liability.
Tax on coupons = Coupons * Tax rate
= $490 * 35%
= $171.50
3. Capital gains from the sale of common stock: Kendra purchased the stock for $835 and sold it for $1180, resulting in a capital gain of $1180 - $835 = $345. Capital gains are taxed at different rates based on the holding period. Since Kendra owned the stock for more than one year (three years in this case), the capital gain is considered a long-term capital gain. The top tax rate for long-term capital gains is 20% for most taxpayers.
Tax on capital gains = Capital gains * Tax rate
= $345 * 20%
= $69
4. Total tax: Now, we can calculate the total tax by summing up the taxes on dividends, coupons, and capital gains.
Total tax = Tax on dividends + Tax on coupons + Tax on capital gains
= $266 + $171.50 + $69
= $506.50
Therefore, the total tax Kendra will pay on last year's investments is $506.50, not $337.25.