Question

Lenny, age 12, has $5,500 interest income from a trust established by his uncle. This is Lenny’s only source of income for 2018.

a. What is Lenny’s taxable income and how much income tax does he owe?

b. How would your answers change if Lenny were age 24?

Answer 1

ANSWER

a). A minor who has unearned income over $ 2,100 in 2018 needs to file a tax return( kiddie tax).

Lenny's taxable income is $ 3,400 and he owes a tax of $459 .

WORKING NOTES:

1. Lenny's taxable income -

Interest income ................$ 5,500

Less : Standard deduction .... $ (2,100)

Taxable Income. ...............$ 3,400

2. Tax calculation -

Unearned income	Tax rate
$ 0 to $ 2,550	10 %
$ 2,551 to $ $9,150	24 %

Lenny's taxable income is $ 3,400

Tax = ($ 2,550 × 10 %) + ( $ 850 × 24 %) = $ 459

b).  If Lenny is 24 years, his interest income of $ 5,500 will be considered as taxable income and he will owe a tax of $ 550 (No other taxable income or standard deductions are considered).

[ Tax = $ 5,500 × 10 % ]

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