Answer to Question #100227 in Economics for Katy

Question

Assume that dividends are taxed at your marginal tax rate of 25% while capital gains are taxed at 15%. How much more will you net if you earn $1000 in capital gains than if the $1000 were dividend income?

Answer 1

Under capital gains

Net amount after tax is

$1000(1-0.15)

$1000×0.85

=$850

Under dividends

Net amount after tax is

$1000 (1-0.25)

$1000 ×0.75

=$750

Get the difference between the amount gained from capital gains and dividend

$850-$750

=$100