Question

Taylor, age 18, is claimed as a dependent by her parents. For 2021, she has the following income: $6,000 wages from a summer job, $800 interest from a money market account, and $300 interest from City of Chicago bonds. If an amount is zero, enter "0". Click here to access the 2021 tax rate schedule.

a. Determine the following:
Taylor's standard deduction for 2021 is $
Taylor's taxable income for 2021 is $

b. Compute Taylor's "net unearned income" for the purpose of the kiddie tax. $

Compute Taylor's income tax. [Her parents file a joint return and have taxable income of $135,000 (no dividends or capital gains).] $

Answer 1

Answer:a.

Wages $4,000

Money market interest 1,800

Bond interest (City of Boston bond interest is tax-exempt.) 0

=

Gross Income $5,800

Less: Standard deduction* (4,350)

=

Taxable income $1,450

b.

Net Unearned Income Calculation:

Money market account interest $1,800

City of Boston bond interest 0

=

Total unearned income $1,800

Minus: $1,100 + $1,000 standard deduction (2,200)

=

Net unearned income 0

Income taxed at Taylor's rate $1,450

Total tax ($1,450 x 10%)** $145

Step-by-step explanation: A dependent's standard deduction is limited to the greater of $1,100 or the sum of his or her earned income plus $350 ($4,000 + $350 = $4,350)

**Because Taylor's unearned income is not more than $2,200, the "kiddie tax" does not apply and her tax is determined using the Single Tax Rate Schedule.