Question

Required information Jackson is 18 years old and has a dog-sitting business. Calculate the 2018 standard deduction Jackson will claim under the following independent circumstances. Use Exhibit 7-3 Jackson reported $2.000 of earnings from his dog sitting. $300 in interest income from his savings account, and Jackson's parents claim him as a dependent. Standard deduction Jackson reported $500 of earnings from his dog sitting and $2,000 in interest income from his savings account, and Jackson's parents claim him as a dependent. Standard deduction Jackson reported $8,000 of earnings from his dog sitting. $3,000 in interest income, and Jackson's parents do not claim him as a dependent. Standard deduction

Answer 1

Jackson falls under the purview of "kiddie tax". The Kiddie tax is applicable on dependent child who is 18 or under, whereby the child is allowed to deduct mini standard deduction from his income.The allowable standard deduction for 2018 is the greater of: (1) $1,050 or (2) earned income + $350, not to exceed $12,000.

1) Jackson has reported earned income of $2000 and unearned income of $300(interest income) and he is claimed as dependent by his parents. Hence his standard deduction would be higher of $1050 or $2350 ($2000 + $350), which is $2,350.

2) Jackson reported $500 of earned income, and unearned income of $2000 (interest amount) and he is claimed as dependent by his parents. Hence his standard deduction would be higher of $1050 or $850 ($500 + $350), which is $1050.

3) Jackson reported $8000 of earned income and $2000 of unearned income (interest income) and he is not claimed by his parents as dependent. Since he is not claimed as dependent, he is not subject to kiddie tax, since his gross income does not exceed $12000 for 2018, he can choose the option not to file his taxes at all, but may wish to do so to recover any withheld income taxes.