Question

Fillipe is in the forty percent marginal tax bracket and has a variety of income sources. Which of the following will he owe the least tax for?

A) $1000 interest income
B) $1000 dividend income
C) $1000 award from his company
D) $2000 capital gain

Answer 1

Fillipe would likely owe the least tax on the $2000 capital gain, assuming it's a long-term gain, as long-term capital gains are taxed at lower rates than ordinary income.

Step-by-step explanation:

Fillipe is in the forty percent marginal tax bracket and would owe different amounts of tax on various types of income. Interest income and awards from a company are typically taxed as ordinary income at the taxpayer's marginal tax rate. In Fillipe's case, this would mean that both $1000 interest income and the $1000 company award would be subjected to a 40% tax rate. Dividend income is often taxed at a lower rate than ordinary income for individuals in a higher tax bracket, potentially making it taxed less than interest income or a company award. However, the least tax would likely be owed on the $2000 capital gain if it is a long-term capital gain, as long-term capital gains are often taxed at a rate that's lower than the marginal tax rate for ordinary income, possibly around 15-20% for Fillipe's tax bracket.