The primary business objective is the maximization of profits while minimizing losses.Taxation is a mandatory and an essential exercise for all taxpayers to the government.The federal government has rates of various amounts of incomes and their due taxes to the government.The taxpayer's in the USA are categorized into three tax groups which are 28%,25%, and 15%.All these tax groups contain different levels of assets for taxation.The 28% includes all capital gains and losses especially when an asset is held more than 12 months.
Example 1:5-36
George acquires stock rights with no allocation of the basis for the stock.The basis of the stock is $ 200( as each share costs $20).However, the FMV of the stock is $135.The FMV of the nontaxable stock rights is greater than 15% of the FMV of the stock.(15%×200=30 while FMV of non-taxable rights is $135).This apparently means that the basis of the stock should be allocated between the stock and the stock rights.Allocation of the basis is very crucial as it shall affect the gains or losses realized after buying, selling or disposition of shares. This way profits shall be achieved, and this ensures minimal losses registered and reallocation maybe the exercised later.
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Example 1:5-61
Leroy contains a 33% tax rate.Leroy holds NSTCL and LTCG.The major first offset for Leroy is the NTCLwhich $20,000 of the collectibles in the 28% group to ensure fair and favorable conditions for him.This offset is made against LTCG $25,000 from the sale of the rare stamps.Her short-term capital loss is $4100, the tax liability ($5000×28%) +(18000×15%).The annual loss for Leroy is $5000 ($23000-$18000).His NSTCG is $43,000.($18,000+$25000).The NSTCG is then taxable to 33% as this is his tax rate and his total gains are $43,000.The total amount of taxation is (33%×43000) $14190.
Reference
Arthur, C. (2016). Convinient affordable legal rights. Retrieved from https://dividends.uslegal.com/taxation-of-dividends/stock-rights/
Antin, M. (1963). Taxation of stock rights. Retrieved from www.scholarship.berkeley.law.edu/carlifornialawreview/vol51/iss1/6
Cornell University. (n.d). Distribution of stock and rights. Retrieved from www.law.cornell.edu/uscode/text/26/305
Kratzke, W. (n.d.). Basic income tax 2 nd edition. Retrieved from http://kratzketax.lawbooks.cali.org/chapter/character-of-income-and-computation-of-tax/
