You purchased 100 shares of MegaCorp for $17 per share four months ago. The brokerage fee was 4% of the total dollar amount of the purchase. Today you sold the shares for $23.50 per share. Brokerage fees were 4% of the total sale value. If you are in the .28 marginal tax bracket, how much tax do you owe on the capital gain? (Hint: since this is a short term investment [less than one year], you will utilize the marginal tax bracket of .28 instead of using the .15 [which is for long term capital gains and dividends.)

$136.64

Explanation:

Purchase price:

100shares*$17price per share

=$1,700

$1,700*.04 brokerage commission

=$68brokerage commission price

Hence:

Total cost to purchase the stock = 1700 + 68 = $1,768

Sale proceeds:

100shares*$23.50 price per share

=$2,350

$2,350*.04brokerage commission

=$94brokerage commission price

Hence:

Total proceeds from sale = 2350 – 94

= $2,256

Capital gain tax computation:

Total proceeds from sale $2,256

Less purchase price $1,768

Taxable capital gain $488

Taxable capital gain $488*.28marginal tax rate

=$136.64 capital gain tax owed

Therefore the capital gain tax owed will be $136.64