4 . Paying taxes on stocks What does it mean to invest in stocks? Common stock is...
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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 longterm wealth building. Investors earn income from common stock in the form of dividends andor capital gains. As an investor it is important to understand the implications of investing in stocks from a tax perspective.
Calculating taxes owed on Carloss investment
Two years ago, Carlos purchased shares of a particular companys stock at a price of $ per share. Last year, Carlos received an annual dividend of $ per share, and at the end of the year, a share of stock was trading at $ per share. This year, Carlos received an annual dividend of $ per share and at the end of the year sold all shares at a price of $ 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 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.
Amount
Taxes Owed
Year Dividends:
$
$
Capital Gains:
$
$
Year Dividends:
$
$
Capital Gains:
$
$
The total amount of investment income pretaxes that Carlos earned on this investment over the course of years is
$
The total amount that Carlos pays in taxes on income from this investment income is
$
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