In 2020, Sheryl is claimed as a dependent on her parents' tax return. Sheryl did not provide more than half of her own support. Her parents are in the 12% marginal tax bracket. Sheryl's income tax rate is 10%. What is Sheryl's tax liability if Sheryl received $5,000 of interest income this year from corporate bonds. This is her only source of income. She is 16 years old at year-end. Note: apply the current kiddie tax rules (as covered in the video lecture on kiddie tax). ### Tax Liability Calculation for a Dependent**Scenario:**In 2020, Sheryl is claimed as a dependent on her parents' tax return. Sheryl did not provide more than half of her own support. Her parents are in the 12% marginal tax bracket, and Sheryl's income tax rate is 10%.**Question:**What is Sheryl's tax liability if she received $5,000 of interest income this year from corporate bonds? This is her only source of income. She is 16 years old at year-end. Note: apply the current kiddie tax rules.**Details and Calculations:**1. **Gross Income/AGI (all unearned income)** - **Amount:** $5,000 - **Explanation:** $5,000 interest income (all unearned income)2. **Minimum Standard Deduction** - **Amount:** $1,100 - **Explanation:** Minimum for taxpayer claimed as dependent on another return3. **$350 Plus Earned Income** - **Amount:** $350 - **Explanation:** $350 + $0 (earned income)4. **Standard Deduction for Dependent on Another Tax Return** - **Amount:** $1,100 - **Explanation:** Greater of (2) and (3)5. **Taxable Income** - **Amount:** $3,900 - **Explanation:** (1) - (4)6. **Gross Unearned Income Minus $2,200** - **Amount:** $2,800 - **Explanation:** (1) - $2,2007. **Net Unearned Income** - **Amount:** $2,800 - **Explanation:** Lesser of (5) or (6)8. **Kiddie Tax** - **Amount:** $308 - **Explanation:** Calculated as [($2,600 x 10%) + ((($2,800 - $2,600) × 24%)] using trust and estate tax rate schedule9. **Taxable Income Taxed at Sheryl’s Tax Rate** - **Amount:** $1,100 - **Explanation:** (5) - (7)10. **Sheryl's Income Tax Rate** - **Amount:** 10% - **Explanation:** Single filing status11. ** ### Understanding Kiddie Tax Rules and Liability Calculation**Problem Statement:**In 2020, Sheryl is claimed as a dependent on her parents' tax return. Sheryl did not provide more than half of her own support. Her parents are in the 12% marginal tax bracket. Sheryl's income tax rate is 10%.What is Sheryl's tax liability if Sheryl received $5,000 of interest income this year from corporate bonds? This is her only source of income. She is 16 years old at year-end. **Note:** Apply the current kiddie tax rules (as covered in the video lecture on kiddie tax).---**Numeric Response:***Input box for entering the numeric value*---### Additional Information:The kiddie tax rules apply to children under age 18 and certain children between ages 18 and 23. For Sheryl, age 16, the unearned income over a certain threshold is taxed at her parents' tax rate.By following this exercise, you will apply the kiddie tax rules to determine Sheryl's tax liability on her $5,000 unearned income from corporate bonds. ---### Step-by-Step Calculation:1. **Determine Sheryl's income:** $5,000 in interest income.2. **Calculate the standard deduction for dependents:** The greater of $1,100 or Sheryl's earned income + $350, up to the standard deduction amount ($12,400 for 2020).3. **Apply the kiddie tax rules:** Tax unearned income over the threshold ($2,200 for 2020) at the parent's tax rate.### Key Concepts:- **Dependent Status:** Sheryl is a dependent, not providing more than half of her support.- **Marginal Tax Rate:** Sheryl's parents' rate is 12%.- **Kiddie Tax Threshold:** Standard amounts to be considered.With these considerations in mind, calculate the liability and input the answer for validation.

Kiddie tax is applicable on a dependent child if all the following requirements are met for the…

In 2020, Sheryl is claimed as a dependent on her parents' tax return. Sheryl did not provide more than half of her own support. Her parents are in 12% parents marginal tax bracket the 12% marginal tax bracket. Sheryl's income tax rate is 10%. 10% child's income tax rate $ 5,000 What is Sheryl's tax liability if Sheryl received $5,000 of interest income this year from corporate bonds. This is her only source of income. She is 16 years old at year-end. Note: apply the current kiddie tax rules (as covered in the video lecture on kiddie tax). Description Amount Explanation 5,000 $7,000 interest income (all unearned income) Minimum for taxpayer claimed as dependent on another return 350 +0 earned income 24 (1) Gross income/AGI (all unearned income) (2) Minimum standard deduction (3) $350 plus earned income 2100 1,100 350 (4) Standard deduction for dependent on another tax return 1,100 Greater of (2) and (3) $ 3,900 (1) - (4) $4 (5) Taxable income (6) Gross unearned income minus $2,200 2,800 (1) - $2,200) $4 (7) Net unearned income 2,800 Lesser of (5) or (6) $ 308 [($2,600 x 10%) + ((7) - $2,600) x 24%)], trust and estate tax rate schedule) 1,100 (5)- (7) 10% Single filing status $110 (9) x (10) (8) Kiddie tax (9) Taxable income taxed at Sheryl's tax rate $ (10) Sheryl's income tax rate (11) Tax on taxable income using Sheryl's rate Total tax $ 418 (8) + (11)

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q