Question

In 2020, Simon, age 12, has interest income of $7,980 from funds he inherited from his grandmother and no earned income. He has no investment expenses. His parents have taxable income of $82,250 and file a joint return. Assume that no parental election is made.

a. Simon's net unearned income is $________ ?
b. Simon's allocable parental tax is $________ ?
c. Simon's total tax is $________ ?

Answer 1

A—he has no unearned income

B—$82,250

C—I think $7,980
Because I done see his total tax

Answer 2

Simon's net unearned income is $6,880. Simon's allocable parental tax is $561.60. Simon's total tax is $671.60.

How to find the taxes ?

For the 2020 tax year, the first $1,100 of a child's unearned income is not taxed due to the standard deduction for unearned income. The next $1,100 is taxed at the child's tax rate, and any unearned income above $2,200 is taxed at the parents' tax rate.

Simon's unearned income: $7,980

Less standard deduction for unearned income: $1,100

Net unearned income: $7,980 - $1,100

= $6,880

The parents' taxable income is $82,250. In 2020, for married filing jointly, this would likely put them in the 12% marginal tax bracket:

So, the allocable parental tax is $4,680 x 12%

= $561.60

Simon's total tax is the sum of the tax on $1,100 at his tax rate (likely 10% for 2020) plus the allocable parental tax.

Tax on $1,100 at Simon's rate: $1,100 x 10%

= $110

Add allocable parental tax: $110 + $561.6

= $671.60

Simon's total tax would be $671.60.