Question

In 2017, Sheryl is claimed as a dependent on her parents’ tax return. Her parents’ ordinary income marginal tax rate is 35 percent. Sheryl did not provide more than half her own support. What is Sheryl’s tax liability for the year in each of the following alternative circumstances?

a) She received $7,000 from a part-time job. This was her only source of income. She is 16 years old at year-end.

b) She received $7,000 of interest income from corporate bonds she received several years ago. This is her only source of income. She is 16 years old at year-end.

c) She received $7,000 of interest income from corporate bonds she received several years ago. This is her only source of income. She is 20 years old at year-end and is a full-time student.

d) She received $7,000 of qualified dividend income. This is her only source of income. She is 16 years old at year-end.

Answer 1

Answer"=

She received $7,000 from a part-time job. This was her only source of income. She is 16years old at year-end. Sheryl’s tax liability is $105.

Note :- that Sheryl has no unearned income and is not subject to the kiddie tax.

Description Amount Explanation

(1) Gross income/AGI $7,000 7,000 in wagesAll earned income

(2) Standard deduction (5950) Not subject to kiddie tax limitations—no unearned income

(3) Personal exemption 0 Claimed as dependent n parents’ return

(4) Taxable income $1050(1) + (2)+ (3) Total tax$105900 × 10% (see rate schedule for Single individuals

b).She received $7,000 of interest income from corporate bonds she received several years ago.

This is her only source of income. She is 16 years old at year-end.Sheryl’s tax liability is $1,880.

Note :- that Sheryl is subject to the kiddie tax because she is under age 18 and has unearned income

Description Amount Explanation

(1) Gross income/AGI (all unearnedincome) $7,000 $7,000 interest income (all unearned income)

(2) Minimum standard deduction 950 Minimum for taxpayer claimed asdependent on another return

(3) $350 plus earned income 300 300 + 0 earned income

(4) Standard deduction for dependent   950 Greater of (2) and (3)

on another tax return

(5) Personal exemption   0 Claimed as dependent on parents’ return

(6) Taxable income   $6,050 (1) - (4)- (5)

(7) Income taxed at Sheryl’s tax rate   $950 Amount taxed at dependent’s rate

(8) Marginal tax rate on first $1,000of income   10% Single filing status

(9) Tax on unearned income at Sheryl’s rate 95 (7) × (8)

(10) Net unearned income $5,100 (1) - (4) – (7)

(11) Parents’ marginal tax rate   35%

(12) Tax on net unearned income 1,785 (10) × (11)

Total tax $1,880 (9) + (12)