Determine Abby's total AGI under both options for the current year and next year.

Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter16: Capital Structure Decisions
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Problem 5P: Stock Price after Recapitalization Lee Manufacturings value of operations is equal to 900 million...
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Abby, a single taxpayer, purchased 10,000 shares of § 1244 stock several years ago at a cost of $20 per share. In November of the current year, Abby received an offer to sell the stock for $12 per share. She has the option of either selling all of the stock now or selling half of the stock now and half of the stock in January of next year. Abby will receive a salary of $80,000 for the current year and $90,000 next year. Abby will have long-term capital gains of $8,000 for the current year and $10,000 next year.

If Abby's goal is to minimize her AGI for the two years, determine whether she should sell all of her stock this year or half of her stock this year and half next year.

a. Determine Abby's total AGI under both options for the current year and next year.

If an amount is zero, enter "0".

 

 

Sell all of the stock this year:
Current year's AGI
Salary
$80,000
Ordinary loss v
50,000 v
Long-term capital gain
$8,000
Less: long-term capital loss
30,000
Equals: net long-term capital loss v
22,000 v
Deductible net long-term capital loss v
3,000
Adjusted gross income
27,000
Net long-term capital loss carryover v
Next year's AGI
Salary
$90,000
Long-term capital gain
$10,000
Less: net long-term capital loss carryover v
19,000
Equals: net long-term capital gain X
Deductible net long-term capital loss v
Adjusted gross income
Total AGI
Current year
Next year
Total
%24
%24
%24
Transcribed Image Text:Sell all of the stock this year: Current year's AGI Salary $80,000 Ordinary loss v 50,000 v Long-term capital gain $8,000 Less: long-term capital loss 30,000 Equals: net long-term capital loss v 22,000 v Deductible net long-term capital loss v 3,000 Adjusted gross income 27,000 Net long-term capital loss carryover v Next year's AGI Salary $90,000 Long-term capital gain $10,000 Less: net long-term capital loss carryover v 19,000 Equals: net long-term capital gain X Deductible net long-term capital loss v Adjusted gross income Total AGI Current year Next year Total %24 %24 %24
Sell half of the stock this year and half next year:
Current year's AGI
Salary
$80,000
Ordinary loss
Long-term capital gain
$8,000
Less: no capital loss v
Equals: net long-term capital gain v
Taxable net long-term capital gain v
Adjusted gross income
Next year's AGI
Salary
$90,000
Ordinary loss
Long-term capital gain
$10,000
Less: no capital loss v
Taxable net long-term capital gain v
Adjusted gross income
Total AGI
Current year
Next year
Total
Transcribed Image Text:Sell half of the stock this year and half next year: Current year's AGI Salary $80,000 Ordinary loss Long-term capital gain $8,000 Less: no capital loss v Equals: net long-term capital gain v Taxable net long-term capital gain v Adjusted gross income Next year's AGI Salary $90,000 Ordinary loss Long-term capital gain $10,000 Less: no capital loss v Taxable net long-term capital gain v Adjusted gross income Total AGI Current year Next year Total
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