If you purchased 200 shares of XYZ Company in May 2017 for $200 per share and the price then grew to $500 per share, how much tax will you pay on the capital gains earned IF your gain is taxed at 15%?
A. $9,090
B. $9,000
C. $6,000
D. $8,900
Answer (2)
Calculate the total purchase price: $200 \times 200 = $40,000.
Calculate the total selling price: $500 \times 200 = $100,000.
Calculate the capital gain: $100,000 - $40,000 = $60,000.
Calculate the tax amount: $60,000 \times 0.15 = \boxed{$9,000}.
Explanation
Identify Given Information First, let's identify the given information:
Number of shares purchased: 200
Purchase price per share: $200
Selling price per share: $500
Capital gains tax rate: 15%
We need to calculate the amount of tax to be paid on the capital gains earned.
Calculate Total Purchase Price Next, we calculate the total purchase price: Total purchase price = Number of shares × Purchase price per share Total purchase price = $200 \times 200 = $40,000
Calculate Total Selling Price Then, we calculate the total selling price: Total selling price = Number of shares × Selling price per share Total selling price = $500 \times 200 = $100,000
Calculate Capital Gain Now, we calculate the capital gain: Capital gain = Total selling price - Total purchase price Capital gain = $100,000 - $40,000 = $60,000
Calculate Tax Amount Finally, we calculate the tax amount: Tax amount = Capital gain × Capital gains tax rate Tax amount = $60,000 \times 0.15 = $9,000
State Final Answer Therefore, the tax you will pay on the capital gains earned is $9,000.
Examples
Understanding capital gains tax is crucial in personal finance. For instance, if you invest in stocks, real estate, or other assets, the profit you make when selling these assets is subject to capital gains tax. Knowing how to calculate this tax helps you estimate your potential tax liabilities and make informed investment decisions. For example, if you buy a house for $200,000 and sell it for $300,000, the $100,000 profit is a capital gain. Calculating the tax on this gain allows you to plan your finances effectively.
The tax paid on the capital gains earned from selling 200 shares of XYZ Company, purchased at $200 and sold at $500, is $9,000, calculated at a 15% tax rate on the total capital gains of $60,000.
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