In October, Bob and Gail decide to separate. Gail supports their children after the separation and pays the costs of maintaining their home. Gail cannot claim abandoned spouse status because Bob lived with her for over one-half of the year. If she had obtained a divorce before the end of the year, she could have filed as a head of household. In the absence of divorce, Gail must file separate return, unless both Bob and Gail agree to file a joint return.
Assume the same facts as an example of I:2-30 except that Gail continues to support her children and pay household expenses during the next year. She can file as a head of household even if she has obtained.
Assume the same facts as an example of I: 2-32 except that Tim is age 17. His standard deduction is still $ 4,850 and his taxable income is also $ 2,050. Since Tim is under age 18, a portion of his unearned income may be subject to tax at his parents’ 28% rate. The computation of Tim’s Tax is as follows;
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Compute Tim’s Taxable income:
Wages $4,500
Interest income $2,400
Adjusted gross income $6900
Standard deduction ($4,500+$350) $4,850
Personal exemption 0 4, 850
Taxable income $2,050
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Compute Tim’s net unearned income $2,400
Unearned income: (1,000)
Statutory deduction (1,000)
Portion of Standard $ 400
Net unearned income
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Compute Tim’s Tax
Tax on net unearned income: $400×28% $ 112
Tax on taxable income minus net unearned income:
($2,050-$400) x 10% 165
Total income tax $ 277
Note: For better understanding. Dividend income and capital gains are taxed at lower rates than income. The long-term capital gains are dividend income of individuals in the 25% through 35% brackets is taxed 15%. Individual in the 10% and tax brackets pay no tax on dividend income or long-term capital, while individuals in the 39.6% tax bracket are taxed at 20%. These lower rates also apply to the kiddie tax calculation. In figuring the tax where the parents file separate returns, the tax rate of the parent with the greater taxable income is used. If the parents are divorced, the parent with custody is the relevant parent.
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