Question

Mr. and Mrs. Maxwell are equal partners in Family partnership. The Maxwell's marginal tax rate is 35%. Next year, the partnership is expected to generate $200,000 of ordinary income. The Maxwells are considering transferring 20% interests in the partnership to each of their children. Their daughter, Melissa, has a 12% marginal tax rate. Their son, Mark, has a 22% marginal tax rate. Calculate the expected annual tax savings to the family from the proposed transfer of partnership interests.

Answer 1

The right answer is "$14,400". A further solution is provided below.

Step-by-step explanation:

The given values are:

Ordinary income,

= 200,000

Maxwell's marginal rate,

= 35%

Melissa's marginal rate,

= 12%

Mark's marginal rate,

= 22%

Now,

Form transfer to Melissa, the savings will be:

=
`200000* .2* (35 - 12) \ percent`

=
`920 0` ($)

Form transfer to Mark, the savings will be:

=
`200000* .2* (35-22) \ percent`

=
`5200` ($)

hence,

The expected annual tax savings will be:

=
`9200+5200`

=
`14,400` ($)