Question

In 2020, Sheryl is claimed as a dependent on her parents' tax return. Her parents report taxable income of $500,000 (married filing jointly). 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?

b. She received $6,800 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 $6,800 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 $6,800 of qualified dividend income. This is her only source of income. She is 16 years old at year-end.

Answer 1

Ans. b.

Part B
Description	Amount	Explanation
(1)Gross income/AGI (All unearned income)	6800	$6800 interest income (All unearned income)
(2) Minimum standard deduction	-1100	Minimum for taxpayer claimed as dependent on another return
(3) $350 plus earned income	350	$350 + 0 earned income
(4)Standard deduction for dependent on another tax return	1100	Greater of (2) and (3)
(5)Taxable income	5700	(1) − (4)
(6) Gross unearned income minus $2,100	4600	(1) − $2,200
(7)Net unearned income	4600	Lesser of (5) or (6)
(8)Kiddie tax	542.4	[($2600 x 10%) + ((7) - $2600) × 24%)], trust and estate tax rate schedule)
(9)Taxable income taxed at Sheryl’s tax rate	1100	(5) − (7)
(10)Sheryl’s income tax rate	10%	Single filing status
(11)Tax on taxable income using Sheryl’s rate	110	(9) × (10)
Total tax	652.4	(8) + (11)

c.

	Part C
	Description	Amount	Explanation
	(1)Gross income/AGI (All unearned income)	6800	$6800 interest income (All unearned income)
	(2) Minimum standard deduction	1100	Minimum for taxpayer claimed as dependent on another return
	(3) $350 plus earned income	350	$350 + 0 earned income
	(4)Standard deduction for dependent on another tax return	1100	Greater of (2) and (3)
	(5)Taxable income	5700	(1) − (4)
	(6) Gross unearned income minus $2,200	4600	(1) − $2,200
	(7)Net unearned income	4600	Lesser of (5) or (6)
	(8)Kiddie tax	542.4	[($2600 x 10%) + ((7) - $2600) × 24%)], trust and estate tax rate schedule)
	(9)Taxable income taxed at Sheryl’s tax rate	1100	(5) − (7)
	(10)Sheryl’s income tax rate	10%	Single filing status
	(11)Tax on taxable income using Sheryl’s rate	110	(9) × (10)
	Total tax	652.4	(8) + (11)

d.

Part D
Description	Amount	Explanation
(1)Gross income/AGI (All unearned income)	6800	$6800 dividend income (All unearned income)
(2) Minimum standard deduction	1100	Minimum for taxpayer claimed as dependent on another return
(3) $350 plus earned income	350	$350 + 0 earned income
(4)Standard deduction for dependent on another tax return	1100	Greater of (2) and (3)
(5)Taxable income	5700	(1) – (4)
(6) Gross unearned income minus $2,100	4600	(1) − $2,200
(7)Net unearned income	4600	Lesser of (5) or (6)
(8) Parents’ preferential rate	20%
(9)Kiddie tax	920	(7) x (8)
(10)Taxable income taxed at Sheryl’s tax rate	1100	(5) − (7)
(11) Sheryl’s preferential rate	0%
(12) Tax on income using Sheryl’s preferential rate	0	(11) × (12)
Total tax	920	(9) + (12)