In 2015, Carson is claimed as a dependent on his parent\'s tax return. His paren

Question

In 2015, Carson is claimed as a dependent on his parent's tax return. His parents' ordinary income marginal tax rate is 28 percent. Carson's parents provided most of his support. Use Tax Rate Schedule for reference.

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

Carson is 17 years old at year-end and earned $11,350 from his summer job and part-time job after school. This was his only source of income.

Tax Liability __________________?
     

Carson is 23 years old at year-end. He is a full-time student and earned $11,350 from his summer internship and part-time job. He also received $3,500 of qualified dividend income.

Tax Liability __________________?
    

In 2015, Carson is claimed as a dependent on his parent's tax return. His parents' ordinary income marginal tax rate is 28 percent. Carson's parents provided most of his support. Use Tax Rate Schedule for reference.

Explanation / Answer

A./

Asssumed that Carson has no unearned income and is not subject to the kiddie tax.

Gross income/AGI = $11350

Standard deduction = ($6100) [Not subject to kiddie tax, limitations—no unearned income]

Personal exemption = $0 [Claimed as dependent on parents' return]

Taxable income = $5250

Total tax
=5250 × 10%

= $525

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B./

Carson is subject to the kiddie tax because he is a full-time student under age 24 and has unearned income greater than $2,000.

1./ Gross income/AGI (all unearned income) =$14850 [$11350 + $3500]

2./ Standard deduction for dependent on another tax return = ($6100)

3./ Personal exemption =$0
(Claimed as dependent on parents' return)

4./ Taxable income =$8750

5./ Gross unearned income minus $2,000 =$1500

($3500 dividends $2000)

6./ Net unearned income $1500
Lesser of (4) or (5)

7./ Parents' preferential rate 15%
(Because his parents' marginal tax rate on ordinary income is 28%, their rate on preferential income is 15%)

8./ Kiddie tax $225
($1500 *15%)

9./ Taxable income taxed at Carson's rate $7250
($8750 - $1500)

10./ Preferential income taxed at Carson's tax rates $2,000
($3500 Dividends - $1500)

11./ Tax on preferential income $0
(Carson's tax rate would be 10 percent if it were ordinary income, so he qualifies for 0 percent rate on dividends).

12./ Taxable income tax at Carson's ordinary tax rates $5250
($7250 - $2000)

13./ Tax on ordinary income $525
( $5250 * 10%)

Total tax $750

($225 + $525)

NOTE

1./ Minimum standard deduction $1,000 Minimum for taxpayer claimed as dependent on another return

2./ $350 + earned income + $6100
350 + $11350 earned income (not to exceed $6,100 regular standard deduction)

Standard deduction is greater of above 1 & 2

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