Ward and June are in the 28% tax bracket.Included in their assets is a Dell Corporation bond with a face value of $10,000.The bond pays $1,000 per year in interest.Ward and June gift the bond to their son,Wally (age 19),on January 1,2017.Wally is in the 10% tax bracket.Wally's taxable income from the receipt of the bond and the bond interest in 2017 is

Question

Quizplus · Accepted Answer

Since Ward and June are in the 28% tax bracket, if they had kept the bond and collected the $1,000 interest, they would have paid $280 in taxes on that interest. By gifting the bond to Wally, who is in the 10% tax bracket, they reduce the taxes paid on that interest to $100.

Wally's taxable income for the year is the $1,000 in bond interest. Since he is in the 10% tax bracket, he will owe $100 in taxes on that income. Therefore, the answer is B) $1,000.

Ward and June Are in the 28% Tax Bracket