Velma is 16.Her income consists of municipal bond interest of $400 and interest credited to her savings account of $2,340.If her parent's taxable income is $88,000,what is Velma's 2017 tax liability?

Question

Quizplus · Accepted Answer

Velma's total income is $2,740 ($400 + $2,340). As she is a dependent of her parents and her unearned income is above $2,100, she is subject to the kiddie tax. The kiddie tax is calculated based on her parents' tax rate. Therefore, her parent's taxable income of $88,000 will determine her tax liability. According to the 2017 tax rates, her parent's tax rate is 25%.

Velma's taxable income is $640 ($2,740 - $2,100). Her tax liability is calculated as $640 * 0.25 = $160. However, she is allowed to claim a standard deduction of $350 in 2017. Therefore, her final tax liability is $160 - $350 = $-190. As her tax liability is negative, she will not owe any taxes and may even receive a refund of $190.

However, the negative tax liability may be different if her parents have other deductions or credits that may reduce their tax liability. Therefore, the best answer is B as it is the closest to the correct answer of $0.

Velma Is 16