During 2020, your clients, Mr. and Mrs. Howell, owned the following investment assets: Investment Assets Date Acquired

Question:

During 2020, your clients, Mr. and Mrs. Howell, owned the following investment assets:

Investment Assets

Date Acquired

Purchase Price

Broker’s Commission Paid at Time of Purchase

300 shares of IBM common

11/22/2017

$10,350

$100

200 shares of IBM common

4/3/2018

$43,250

$300

3,000 shares of Apple preferred


12/12/2018


$147,000


$1,300

2,100 shares of Cisco common


8/14/2019


$52,500


$550

420 Shares of Vanguard mutual fund


3/2/2020


$14,700


No load fund*

            *No commissions are charged when no load mutual funds are bought and sold.


Because of the downturn in the stock market, Mr. and Mrs. Howell decided to sell most of their stocks and mutual fund in 2020 and to reinvest in municipal bonds. The following investment assets were sold in 2020:

Investment Assets

Date Sold

Sale Price

Broker’s Commission Paid at Time of Sale

300 shares of IBM common

5/6

$13,700

$100

3,000 shares of Apple preferred


10/5


$221,400


$2,000

2,100 shares of Cisco common


8/15


$63,250


$650

451 Shares of Vanguard mutual fund


12/21


$15,700


No load fund*


*No commissions are charged when no load mutual funds are bought and sold.

The Howells’ broker issued them a Form 1099-B showing the sales proceeds net of the commissions paid. For example, the IBM sales proceeds were reported as $13,600 on the Form 1099-B they received.

In addition to the sales reflected in the table above, the Howells provided you with the following additional information concerning 2020:
• The Howells received a Form 1099-B from the Vanguard mutual fund reporting a $900 long-term capital gain distribution. This distribution was reinvested in 31 additional Vanguard mutual fund shares on 6/30/2020.
• In 2015, Mrs. Howell loaned $6,000 to a friend who was starting a new multilevel marketing company called LD3. The friend declared bankruptcy in 2020, and Mrs. Howell has been notified that she will not be receiving any repayment of the loan.
• The Howells have a $2,300 short-term capital loss carryover and a $4,800 long-term capital loss carryover from prior years.
• The Howells did not instruct their broker to sell any particular lot of IBM stock.
• The Howells earned $3,000 in municipal bond interest, $3,000 in interest from corporate bonds, and $4,000 in qualified dividends.
• Assume the Howells have $130,000 of wage income during the year.

a. Go to the IRS web site (www.IRS.gov) and download the most current version of Form 8949 and Form 1040 Schedule D. Use Form 8949 and page 1 of Schedule D to compute net long-term and short-term capital gains. Then, compute the Howells’ tax liability for the year (ignoring the alternative minimum tax and any phase-out provisions) assuming they file a joint return, they have no dependents, they don’t make any special tax elections, and their itemized deductions total $25,000. Assume that asset bases are reported to the IRS.

b. Are there any tax planning recommendations related to the stock sales that you should have shared with the Howells before their decision to sell?

c. Assume the Howells’ short-term capital loss carryover from prior years is $82,300 rather than $2,300 as indicated above. If this is the case, how much short-term and long-term capital loss carryover remains to be carried beyond 2020 to future tax years?

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Related Book For  answer-question

Taxation Of Individuals And Business Entities 2021

ISBN: 9781260247138

12th Edition

Authors: Brian Spilker, Benjamin Ayers, John Barrick, Troy Lewis, John Robinson, Connie Weaver, Ronald Worsham

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