Ward and June are in the 32% tax bracket. Included in their assets is a Dell Computer Corporation bond with a face value of $10,000. The bond pays $1,000 a year in interest. Ward and June gift the bond to their son, Wally (age 19), on January 1, 2018. Wally is in the 12% tax bracket. The 2018 net tax savings for the family unit of Ward, June and Wally related to the transfer of the bond is

Question

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The net tax savings is calculated by comparing the tax that would have been paid on the bond's interest by Ward and June at their higher tax rate, versus the tax paid by Wally at his lower rate. The bond pays $1,000 a year in interest. At Ward and June's 32% tax rate, they would have paid $320 in taxes on the interest. Wally, at a 12% tax rate, pays $120 in taxes on the same interest. The net tax savings for the family is the difference between these two amounts: $320 - $120 = $200.

Ward and June Are in the 32% Tax Bracket