In 2012, Alva received dividends on her stocks as follows:
|
Amur Corporation (a French corporation whose stock is traded |
|
|
on an established U.S. securities market) |
$55,000 |
|
Blaze, Inc., a Delaware corporation |
25,000 |
|
Grape, Inc., a Virginia corporation |
12,000 |
a. Alva purchased the Grape stock four years ago, and she purchased the Amur stock two years ago. She purchased the Blaze stock 15 days before it went ex dividend and sold it 20 days later at a $22,000 loss. Alva had no other capital gains and losses for the year. She is in the 35% marginal tax bracket. Compute Alva’s tax on her dividend income for 2012.
b. Alva’s daughter, who is 25 and not Alva’s dependent, had taxable income of $6,000, which included $1,000 of dividends on Grape, Inc. stock. The daughter had purchased the stock two years ago. Compute the daughter’s tax liability on the dividends.
c. Alva can earn 5% before tax interest on a corporate bond or a 4% dividend on a preferred stock. Assuming that the appreciation in value is the same, which investment produces the greater after tax income?
d. The same as part (c), except Alva’s daughter is to make the investment.