On January 5, 2015, Allan purchases 500 shares of Wichmann, Inc., common stock at a cost of $23,400. On April 1, 2015, he purchases an additional 300 shares for $19,890. On November 13, 2015, Wichmann, Inc., declares and distributes a 30% stock dividend. On December 23, 2015, Wichmann distributes a cash dividend of 40 cents per share. On February 19, 2016, Allan sells 800 shares of the Wichmann, Inc., stock for $45 per share. Note: All sales should be considered on a FIFO basis using a strict date approach.
a. The shares are assumed to be sold on a first-in, first-out basis using a strict date approach (the 800 shares sold are from the 500 shares purchased on January 5, 2015, and 300 shares purchased on April 1, 2015). In 2015, Allan recognizes dividend income of $............... and in 2016, he recognizes a capital gain of $.............. on his Wichmann, Inc. stock. In certain circumstances, a taxpayer acquires securities subject to special rules or does so without paying a purchase price.
b. To improve the tax results in 2016, Allan should do the following: Allan should identify the shares ...............with the $ ..................higher basis and shares with $.................. lower basis per share to realize a gain on the sale of $ .............