Ivan Trent,age five,receive $2,900 of dividends per year from a mutual fund he owns; it is his only source of taxable income.Ivan's parents plan to gift a corporate bond they currently own to him.The bond pays $4,100 of interest income per year.Ivan's parents are in the 37% tax bracket.The individual income tax rate schedule that generally applies to a single taxpayer indicates a 10% tax rate until taxable income of $9,700.Ivan's family will save tax at the rate of 27% (37% - 10% tax rates)on the bond interest income if the parents transfer the bond to Ivan.

Question

Quizplus · Accepted Answer

Ivan's unearned income, including dividends and interest, may be subject to the "kiddie tax," which taxes the child's unearned income over a certain threshold at the parent's tax rate, not the child's lower rate. Therefore, the family may not save tax at the rate of 27% on the bond interest income.

Ivan Trent,age Five,receive $2,900 of Dividends Per Year from a Mutual