Question

filing 2019 tax returns, Scott and Glenna are married with two dependent children. They have $74,000 in wage income and $4,600 in interest income on some bonds they own. They have deductions for adjusted gross income of $4,000 and itemized deductions of $24,600. Neither of the children has any income. Determine the tax savings for the family if Scott and Glenna were to transfer the bonds to the children, both under 18.

Answer 1

ANSWER

WAGES INCOME	$74000
ADD INTEREST INCOME	4600
TOTAL INCOME	78600
LESS DEDUCTION FOR AGI	(4000)
ADJUSTED GROSS INCOME	74600
LESS ITEMIZED DEDUCTION	(24,600)
LESS PERSONAL EXEMPTION ($4000 * 4)	(16000)
TAXABLE INCOME	$34,000
TAX [($18450 * 10%) + ($34,000- $18450) * 15%]	4,178

TRANSFERING OF BOND TO THE CHILDREN WILL REDUCE THE TAXABLE INCOME BY $4600 AND THE TAX ($4600 * 15%) $690.

HOWEVER, EACH CHILD WILL HAVE A TAXABLE INCOME OF $1250($2300 INCOME - $1050 STANDARD DEDUCTION) AND WILL INCUR A $135 TAX. OF EACH CHILD'S $1250 TAXABLE INCOME

$200 ($2300 - $1050 - $1050) WILL BE TAXED AT THE PARENTS' 15% TAX RATE AND $1,050 WILL BE TAXED AT THE CHILD'S 10% RATE FOR A $135 TAX ON EACH CHILD.

THE PARENTS' SAVINGS OF $690 IS REDUCED BY A $270 ($135 × 2) INCREASE TAXES ON THE CHILDREN.

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