Question

Montague (age 15) is claimed as a dependent by his parents Matt and Mary. In 2018,...

Montague (age 15) is claimed as a dependent by his parents Matt and Mary. In 2018, Montague received $5,000 of qualified dividends and he received $800 from a part time job. What is his taxable income for 2018?

A) $0

B) $3,900

C) $4,650

D) $4,750

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Answer #1

SOLUTION

Note:-

In calculating the federal income tax bill for a dependent child (or young adult) who is subject to the Kiddie Tax, the child is allowed to subtract his or her standard deduction amount. The allowable standard deduction for 2018 is the greater of:

(1) $1,050

or

(2) earned income + $350, not to exceed $12,000.

Therefore taxable income of Montague can be calculated as follows.

Particulars Amount
Qualified Dividends $ 5000
Income from part time Job $ 800
Less: Deduction $ 1050 or ($ 800+$ 350) Whichever is higher ($1150)
Taxable Income $ 4650

Therfore OPTION C is correct

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