Mr. and Mrs. Klein's joint tax return reports $260,000 AGI and $230,000 taxable income, which includes $15,000 qualified dividends. Compute the couple's total tax due in the current year rounded to the nearest dollar including their income tax and net investment income tax.

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Question restatement: Mr. and Mrs. Klein file a joint return with AGI of 260,000 and taxable income of 230,000, which includes 15,000 of qualified dividends. Determine the total tax due (income tax plus net investment income tax, NIIT) for the year, rounded to the nearest dollar.

Step 1 — Separate ordinary income tax from dividend (capital gains) tax concepts. The 230,000 taxable income includes 15,000 of qualified dividends. For tax purposes, qualified dividends are taxed at preferential capital gains rates, not at the ordinary income tax rates that apply to non-dividend ordinary income. The NIIT (3.8%) applies to net investment income (which includes qualified dividends) to the extent MAGI exceeds the threshold ($250,000 for MFJ). Here, MAGI is 260,000, so the amount of MAGI that is in excess of the threshold is 10,000. The NIIT is the lesser of net investment income (NII) or MAGI excess; with 15,000 of NII and 10,000 of MAGI excess, the NIIT base is 10,000, producing NIIT of 0.038 × 10,000 = 380.

Step 2 — Calculate regular income tax with dividend treatment. The correct approach is to compute regular tax on ordinary income (excluding qualified dividends) at ordinary rates, and compute tax on qualified dividends at the qualified-dividend rates (capital gains rates). Ordinary income = 230,000 − 15,000 = 215,000.

- Regular tax on 215,000 (using 2023 MFJ brackets as a reference):
  • 10% on 0–22,000 = 2,200
  • 12% on 22,001–89,450 = 67,450 × 12% = 8,094
  • 22% on 89,451–190,750 = 101,300 × 22% = 22,286
  • 24% on 190,751–215,000 = 24,249 × 24% = 5,820
  Sum of ordinary tax = 2,200 + 8,094 + 22,286 + 5,820 = 38,400.

- Tax on qualified dividends (capital gains rate). Since total taxable income of 230,000 places the taxpayer in a capital gains bracket where qualified dividends are taxed at 15% (the MFJ 15% bracket threshold is well below 230,000), the 15,000 of qualified dividends are taxed at 15%: 15,000 × 15% = 2,250.

Total regular income tax (ordinary tax + tax on qualified dividends) = 38,400 + 2,250 = 40,650.

Step 3 — Add NIIT. NIIT = 3.8% × the lesser of NII or MAGI excess. Here, lesser is 10,000 (MAGI excess over 250k). NIIT = 380.

Step 4 — Compute total tax due. Total tax = regular income tax (40,650) + NIIT (380) = 41,030.

Conclusion and alignment with options. Based on these calculations, the total tax due (income tax plus NIIT) would be 41,030. This matches option: "$41,030." (Note: if your course uses a different tax-year bracket set or a slightly different interpretation of how dividends interact with NIIT, you may see small discrepancies; under the standard treatment shown here, the total tax comes to 41,030.)

SP25-BL-BUS-A327-1377 Exam 1 Practice

Mr. and Mrs. Klein's joint tax return reports $260,000 AGI and $230,000 taxable income, which includes $15,000 qualified dividends. Compute the couple's total tax due in the current year rounded to the nearest dollar including their income tax and net investment income tax.

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