Sue and Jack crackers have one child, Christy, who is now 4 years of age. sue an

Question

Sue and Jack crackers have one child, Christy, who is now 4 years of age. sue and jack anticipate that they will be in the 28 percent bracket for 2015 and are considering shifting some of their property generating unearned income to christy in order to achieve tax savings. sue and jack anticipate transferring 2500 of unearned income to christy. assuming christy has no other source of income, what will be christys income tax payable? what is the amount of savings sue and jack have accomplished by transferring income to christy?

Explanation / Answer

Since Unearned income income received by christy is above the threshold amount of 2100 ( in 2015) it is taxed at their parent's highest income tax rate @ 28%.

Christy will be required to pay tax of 105

Total tax savings to Sue & jack should be around 567 as per calculation below

Year 2015 A If Unearned income not shifted to christy Unearned Income Tax@ Tax Tax to be beared by Sue & Jack                                               (a) 2800 28% 784 B If Unearned income shifted to christy Unearned Income Tax@ Tax Tax to be beared by Christy ( Threshold amount -2015 ) 2100 Less : standard tax deduction -1050 10% 105 Tax to be beared by Sue & Jack ( Excess of 2100)             (b) 400 28% 112 (subject to kiddie tax) 217 Tax Saved ( a-b) 567

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