Question

In 2019, Sheryl is claimed as a dependent on her parents' tax return. Sheryl did not provide more than half her own support.

What is Sheryl's tax liability for the year in each of the following alternative circumstances?

b. She received $7,200 of interest income from corporate bonds she received several years ago. This is her only source of income. She is 16 years old at year-end.

c. She received $7,200 of interest income from corporate bonds she received several years ago. This is her only source of income. She is 20 years old at year-end and is a full-time student.

d. She received $7,200 of qualified dividend income. This is her only source of income. She is 16 years old at year-end. (Round your final answer to 2 decimal places.)

Answer 1

b. Sheryl received $7,200 of interest income from corporate bonds she received several years ago. This is her only source of income. She is 16 years old at year-end.

Sheryl is subject to the kiddie tax on unearned income over $2,200 in 2019. The amount of interest income will be counted as unearned income.

Taxable Income	Tax
0 - $2600	10% of taxable Income
$2600 - $9300	$260 + 24% of the excess over $2600
$9300 - $12750	$1868 + 35% of the excess over $9300
$12750	$3075.5+ 37% of the excess over $12750

Calculation of tax liability

Particulars	Amount	Remarks
Gross Income	7200
Standard Deduction	1100
$350 plus earned income	350
Standard Deduction	1100	whichever greater 1100 or 350
Taxable Income	6100	(7200-1100)
Gross Unearned Income - $2200	5000	(7200-2200)
Net Unearned Income	5000	whichever less 6100 or 5000
Kiddie tax	836	[(2600 * 10%) + (5000 - 2600) * 24%]
Taxable Income at Sheryl's Tax Rate	1100	(6100 -5000)
Sheryl's Tax Rate	10%
Tax	110	1100 * 10%
Total Tax	946	(836 + 110)

c. Sheryl received $7,200 of interest income from corporate bonds she received several years ago. This is her only source of income. She is 20 years old at year-end and is a full-time student.

Tests for dependents is as follows:

1. Age- Must be between the age of 19 to 23 and must be a full time student
2. Support- Did not provide for more than half of his support for the year

In given case Sheryl will be allowed to be claimed as dependent. As she fulfills all the conditions of dependency as she is 20 and a full time student. She also has provided less than half of her support.

As she can be claimed as a dependent her tax liability will be same as calculated in part b above.

Particulars	Amount	Remarks
Gross Income	7200
Standard Deduction	1100
$350 plus earned income	350
Standard Deduction	1100	whichever greater 1100 or 350
Taxable Income	6100	(7200-1100)
Gross Unearned Income - $2200	5000	(7200-2200)
Net Unearned Income	5000	whichever less 6100 or 5000
Kiddie tax	836	[(2600 * 10%) + (5000 - 2600) * 24%]
Taxable Income at Sheryl's Tax Rate	1100	(6100 -5000)
Sheryl's Tax Rate	10%
Tax	110	1100 * 10%
Total Tax	946	(836 + 110)

d. Sheryl received $7,200 of qualified dividend income. This is her only source of income. She is 16 years old at year-end.

Particulars	Amount	Remarks
Gross Income	7200
Standard Deduction	1100
$350 plus earned income	350
Standard Deduction	1100	whichever greater 1100 or 350
Taxable Income	6100	(7200-1100)
Gross Unearned Income - $2200	5000	(7200-2200)
Net Unearned Income	5000	whichever less 6100 or 5000
Kiddie tax	352.5	[(2650 * 0%) + (5000 - 2650) * 15%] tax rate for preferentially taxed dividend
Taxable Income at Sheryl's Tax Rate	1100	(6100 -5000)
Sheryl's Tax Rate	0%	Sheryl's taxable income falls in 0% bracket her only preferential income is taxed
Tax	0
Total Tax	352.5	(352.5 + 0)