Question

1- Cheryl is claimed as a dependent on her parents' tax return. She had a part-time job during 2017 and earned $4,900 during the year, which was her only income. What is her standard deduction?

2- These problems deal with Kiddie Tax, Standard Deduction, Taxable Earned Income and Unearned Income. Tax Year 2017

Child Under 19 or Full Time Student <24

25% Percent Bracket For Parents

A.   Child Kevin

Interest Income $1,200

Parents Income $90,000

B.   Child Stacy

Interest Income $4,700

Parents Income (Joint) $90,000

C.   Child Derek

W-2 WAGES $1,500

Interest Income $3,000

Parents Make $90,000

D.   Child Sally

     W-2 WAGES $6,000

     Interest Income $3,600

     Parents Make $ 90,000

Answer 1

( 1 ) The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the larger of: $1,050, or. The individual's earned income plus $350, but not more than the regular standard deduction (generally $6,350).for married couples filing jointly, the standard deduction is $12,700

Standered Deduction in Cheryl’s Case is : Higher of Following:

$ 1050

OR

$ 4900+ $350 = $ 5250

I.e. $ 5250

If Joint Return of parents is filed the whole amout is available for deduction

(2)   A child who has only unearned income must file a return if the total is more than $1,050.

Income tax on unearned income over an annual threshold had to be paid at the parent's maximum tax rate, not the child's own individual tax rate (which would usually be lower than that of the parents). This special "kiddie tax" prevented parents from transferring income-producing assets to their children so they could pay tax on the income at their children's lower tax rates.

So In given case Tax rate for Childs is 25% which is same as Parent’s Tax rate

A.   Child Kevin

Interest Income $1,200

Parents Income $90,000

Unearned Income i.e. Interest Income is $1200 which is more than thresholds ($ 1050) so he has to file Separate Income tax return

There is no earned income of Kevin

B.   Child Stacy

Interest Income $4,700

Parents Income (Joint) $90,000

Unearned Income i.e. Interest Income is $4700 which is more than thresholds ($ 1050) so he has to file Separate Income tax return

There is no earned income of Stacy

C.   Child Derek

W-2 WAGES $1,500

Interest Income $3,000

Parents Make $90,000

For 2017, the threshold for the kiddie tax - the amount of unearned net income that a child can take home without paying any federal income tax - is $1,050. All unearned income in excess of $2,100 is taxed at the parent's tax rate.

Here ,

Earned Income (Wages) - $ 1500 (less than threshold limit)

Unearned Income ( Interest) - $3000 (More than threshold limit)

Derek Has to file Separate Return & pay tax @ 25%

D.   Child Sally

     W-2 WAGES $6,000

     Interest Income $3,600

     Parents Make $ 90,000

Earned Income (Wages) - $ 6000 (More than threshold limit)

Unearned Income ( Interest) - $3600 (More than threshold limit)

Derek Has to file Separate Return & pay tax @ 25%