Question

In 2020, Carson is claimed as a dependent on his parents' tax return. His parents report taxable income of $200,000 (married filing jointly). Carson's parents provided most of his support.

What is Carson's tax liability for the year in each of the following alternative circumstances? Use Tax Rate Schedule, Tax Rates for Net Capital Gains and Qualified Dividends for reference.

b. Carson is 23 years old at year-end. He is a full-time student and earned $14,000 from his summer internship and part-time job. He also received $5,000 of qualified dividend income. (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Tax Liability =

Answer 1

Carson's tax liability is $202.50. Carson is subject to the kiddie tax because he is a full-time student under age 24 and has unearned income greater than $2,200.

(1)Gross income/AGI (all unearned income)$19,000.0014,000 earned income & $5,000 unearned income (qualified dividends)

(2)Minimum standard deduction 1,100.00Minimum for taxpayer claimed as dependent on another return

(3)$350 plus earned income, limited to $12,200 12,200.00350 + 14,000 earned income (not to exceed $12,200 regular standard deduction)

(4)Standard deduction for dependent on another tax return 12,200.00Greater of (2) and (3)

(5)Taxable income$6,800.00(1) − (4)

(6)Gross unearned income minus $2,200 2,800.00$5,000 dividends − $2,200

(7)Net unearned income$2,800.00Lesser of (5) or (6)

(8)Kiddie tax$22.50[($2,650 × 0%) + ((7) - $2,650) × 15%)],trust and estate tax rate schedule for preferentially taxed dividends.

(9)Taxable income taxed at Carson's rate$4,000.00(5) − (7)

(10)Preferential income taxed at Carson's tax rates 2,200.00$5,000 Dividends − (7)

(11)Tax on preferential income$0.00(10) × 0% (Carson's tax rate would be 10 percent if it were ordinary income, so he qualifies for 0 percent rate on dividends)

.(12)Taxable income tax at Carson's ordinary tax rates$1,800.00(9) − (10)

(13)Tax on ordinary income$180.00(12) × 10% Total tax$202.50(8) + (11) + (13)