Final answer:
John's tax liability, with a $3,500 interest income and no earned income, is calculated by deducting the standard deduction from his total income to find the taxable income and then applying the 10% tax rate. After the standard deduction, his taxable income is $2,400, resulting in a tax liability of $240.
Step-by-step explanation:
Considering James and Judy's dependent child, John, who received $3,500 of interest income in 2019, we must calculate his tax liability assuming he uses the Estate and Trust Tax Rate Schedule at a rate of 10% due to no earned income.
To determine John's tax liability, we can utilize the basic concepts of taxation to find his taxable income and then apply the appropriate tax rate.
For 2019, the IRS allows a standard deduction for a single dependent under 65 and not blind, which is $1,100 or the individual's earned income plus $350, whichever is greater, but not to exceed the standard deduction for an individual who may be claimed as a dependent by another taxpayer, which for 2019 is $12,200.
Since John's earned income is $0, his standard deduction would be $1,100 ($350 + $0), meaning he can deduct $1,100 from the $3,500 interest income, resulting in a taxable income of $2,400. Applying the 10% tax rate, John's tax liability would be calculated as 10% of $2,400, equating to $240.