Question

Paige, age 17, is claimed as a dependent on her parents' 2017 return, on which they report taxable income of $120,000 (no qualified dividends or capital gains). paige earned $3,900 pet sitting and $4,100 in interest on a savings account. what are paige's taxable income and tax liability for 2017? if an amount is zero, enter "0".

Answer 1

taxable income = $3,750

tax liability = $675

Step-by-step explanation:

Paige's total gross income = $3,900 + $4,100 = $8,000

minus standard deduction = earned income + $350 = $3,900 + $350 = $4,250

Paige's total taxable income = $8,000 - $4,250 = $3,750

now we must determine Paige's unearned taxable income = $4,100 - $1,050 - $1,050 = $2,000 ⇒ these $2,000 will be taxed at her parents marginal tax rate (using the 2017 tax brackets for married filing jointly, their marginal tax rate is 25%)

total tax liability:

$2,000 x 25% = $500

($3,750 - $2,000) x 10% (lowest bracket) = $175

total tax liability = $675