Question

Tax Rates for Net Capital Gains and Qualified Dividends Taxable Income Rate* Married Filing Jointly Married Filing Separately Single Head of Household Trusts and Estates 0% $0 - $80,000 $0 - $40,000 $0 - $40,000 $0 - $53,600 $0 - $2,650 15% $80,001 - $496,600 $40,001 - $248,300 $40,001 - $441,450 $53,601 - $469,050 $2,651 - $13,150 20% $496,601+ $248,301+ $441,451+ $469,051+ $13,151+ *This rate applies to the net capital gains and qualified dividends that fall within the range of taxable income specified in the table (net capital gains and qualified dividends are included in taxable income last for this purpose).
In 2020, Sheryl is claimed as a dependent on her parents' tax return. Her parents report taxable income of $500,000 (married filing jointly). 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?

a. She received $7,100 from a part-time job. This was her only source of income. She is 16 years old at year-end.

b. She received $7,100 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 $7,100 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 $7,100 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.)

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Answer 1

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Answer is highlighted in yellow: As per 2020 tax rules: Solution: a) Earned income Less: Standard deduction Taxable income Tax liability 7100 12400 0 0 b) Sheryl has more than $2200 unearned income, kiddle tax rates will be applicable on her income: Year 2020 Earned Income $ Interest Income (Unearned) $ 7,100 AGI $ 7,100 Standard deduction Greater or 1100 or (earned income +350) $ -1,100 Gross Unearned Income or Taxable income $ 6,000 Statutory Deduction - subjec to ordinary rates $ 1,100 (2200-1100) Net Earned Income, subject to kiddle tax rates $ 4,900 Tax on first 2200 at ordinary rate (2200-1100)*10% Sheryl's allocable parents tax (4900*35%) $ 110 $ 1,715 Sheryl's tax liability (110+1715) $ 1,825

c) Sheryl has more than $2200 unearned income, kiddle tax rates will be applicable on her income: She is a full time student, limit of age is 24: Year 2020 Earned Income $ Interest Income (Unearned) $ 7,100 AGI $ 7,100 Standard deduction Greater or 1100 or (earned income +350) $ -1,100 Gross Unearned Income or Taxable income $ 6,000 Statutory Deduction - subjec to ordinary rates $ 1,100 (2200-1100) Net Earned Income, subject to kiddle tax rates $ 4,900 Tax on first 2200 at ordinary rate (2200-1100)*10% Sheryl's allocable parents tax (4900*35%) Sheryl's tax liability $ 110 $ 1,715 $ 1,825 d) AGI Sheryl has more than $2200 unearned income, kiddle tax rates will be applicable on her income: Year 2020 Earned Income $ Dividend Income (Unearned) $ 7,100 $ 7,100 Standard deduction Greater or 1100 or (earned income +350) $ -1,100 Gross Unearned Income or Taxable income $ 6,000 Statutory Deduction - subjec to ordinary rates $ 1,100 (2200-1100) Net Earned Income, subject to kiddle tax rates $ 4,900 Tax with Parent's preferencial rate (4900*20%) $ 980.00 $ Tax on first 2200 at preferential rate (2200-1100) *0% Sheryl's tax liability $ 980