Question

29. LO.1, 3, 6 Terri, age 16, is a dependent of her parents in 2019. During the year, Terri earned $5,000 in interest income and $3,000 from part-time jobs. a. What is Terri’s taxable income? b. What is Terri’s net unearned income? c. What is Terri’s tax liability?

Answer 1

Answer:

1. Terri’s Taxable Income:

If earned income is greater than $1,050 then standard deduction will be earned income plus $350. In this case 3000>1050 therefore, Standard deduction = 3000 + 350 =3350

Earned Income	$3,000
Unearned Income	$5,000
AGI	$8,000
Standard Deduction	$3350
Taxable Income (AGI – Standard Deduction)	$4,650

2. Terri’s Net Unearned Income:

If the unearned income is higher than $2,200,

Then, Net Unearned Income = unearned income - $2,200

Net Unearned Income = $5,000 - $2,200 = $2,800

3. Terri’s Tax Liability:

Terri is 16 years old. For children under age 19, the net unearned income will be subtracted from their Taxable income. This net unearned income will be taxed to parents.

Tax Liability = Tax rate * (Taxable income - Net Unearned Income)

Tax rate is 10%

Tax Liability = 10%* (4,650 – 2,800)

Tax Liability = 10%* $1,850

Tax Liability = $185