The tax that Tom would owe on the mutual fund, which he had held for three years, will be $550, given that he falls under 15% marginal tax bracket.
What is tax?
An amount of service given paid to the authority as a part of one's individual income during a financial year is known as a tax. It is also charged on income made by investing in mutual funds.
Using the given information, the total tax liability for Tom throughout the 3 years will be 15% of $11,000 i.e., $1650. However, if the mutual funds were held for three years, then the liability will be 1650/3 = $550.
Hence, the significance of tax to be paid by Tom is aforementioned.
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