Question

QUESTION 39

1. Which of the following dependent children have income subject to the so-called kiddie tax?

   --- Marcia, age 25 and a full-time student, earned $1,000 in wages and $2,700 in interest income.

   --- Jan, age 17, earned $4,000 in capital gains from stock investments.

   --- Cindy, age 16, earned $5,000 in wages and $1,500 in interest income from a savings account.

   		Marcia only.
   		Cindy only.
   		Jan only.
   		Marcia and Jan only.
   		Marcia, Jan, and Cindy will all have income subject to the kiddie tax.

  

QUESTION 40

1. To avoid the tax preparer penalty for understatement of the tax liability in a disclosed position, the taxpayer's position on the return must, at a minimum

   		have a reasonable basis.
   		be more likely than not (more than 50% chance) to succeed.
   		have substantial authority.
   		not be frivolous.
   		have a realistic possibility of success.

Answer 1

Q)39)

Jan only will be liable for Kiddie tax

Marcia age is 25, so not liable for Kiddie tax

Cindy have earned income of $5,000 and unearned income of $1,500

She can take standard deduction upto earned ince plus 350 not exceeding $12,400 (for year 2020). So standard deduction will be $5,350

Later the remaining amount didn't exceed the threshold limit (of $2,200) applicable to them for paying kiddie tax.

Jan has unearned income of $4,000. The standard deduction and threshold limit are not sufficient for $4,000. So he has to pay kiddie tax

Q)40)

To avoid tax preparer penalty of understatement of tax liability in a disclosed position the tax payers minimum position on the return must,

- at a minimum have a reasonable basis

(As long as there is adequate disclosure)

(Be likely than not is necessary only in case of tax shelter and reportable transactions)