Question

Cindy is age 18, is claimed as a dependent on her parents joint tax return. During the year, cindy earned $3,000 babysitting and $2500 in interest from a bank savings account. compute cindys net unearned income and taxable income in 2018.

Answer 1

For 2018, the standard deduction amount for an individual who may be claimed as a dependent by another taxpayer cannot exceed the greater of $1,050 or the sum of $350 and the individual’s earned income

Taxable Income = Total Income - Standard Deduction

Taxable Income = 2500 + 3000 - (Great of $1050 or 3350)

Taxable Income = 2500 + 3000 - $3350

Taxable Income = $2150

Net unearned income is the lesser of

(1) the child's gross unearned income minus $2,000 or

(2) the child's taxable income (the child is not taxed on more than her taxable income)

Net Unearned Income = $2500 - $2000 = $500