In 2019, Simon, age 12, has interest income of $900 and dividend income of $4,000. He has no investment expenses. Determine Simon's net unearned income and total tax liability.

The Total tax payable by Simon (after rounding off) = $290.

Explanation:

Kiddie  tax  is  applicable  as  Simon  has  Unearned  Income  of  more  than $2,200 .  Therefore ,  the  amount  above  it  will  be  taxed.

Total  Unearned  income  in the  given  case =  $900 + $4,000 =  $4,900.

Standard  Deduction  =  $2,200

Net  unearned  Income  =  Total  unearned  income  -  Standard  deduction

=  $ 4,900 -  $ 2,200   = $2,700.

Total Tax payable by Simon

10%  of  taxable  income  up  to  $2,550  =  10%  of  $2,550  = $255

24%  of  the  taxable  income  over  $2,550 =  ( $2,700 - $2,550 ) * 24% =$36

Tax  payable  by  Simon  = $255  +  $36  =  $291.

Total tax payable by Simon (after rounding off) = $290.

Unearned income = $4900

Tax = $648

Explanation:

Unearned income is income that one has not worked for. It is known as passive income that is not acquired through work, for example, savings accounts, investments and share dividends etc.

If a child has net unearned income of more than 2200 dollars then they are subject to child tax. Simon has unearned income of 4900 dollars in total. He has to pay on 2700 dollars, which is 4900 minus the 2200 child limit. He will then have to pay 24% on the 2700 = $648 tax.

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