48. LO.1, 3, 6, 7 Paige, age 17, is claimed as a dependent on her parents’ 2013 return, on which they report taxable income of $120,000 (no qualified dividends or capital gains). Paige earned $3,900 pet sitting and $4,000 in interest on a savings account. What are Paige’s taxable income and tax liability?
49. LO.1, 3, 6, 7 Terri, age 16, is claimed as a dependent on her parents’ 2013 return.
During the year, Terri earned $5,000 in interest income and $3,000 from part-time jobs.
a. What is Terri’s taxable income?
b. How much of Terri’s income is taxed at her own tax rate? At her parents’ rate?
c. Can the parental election for the kiddie tax be made? Why or why not?
50. LO.6, 8 During the year, Inez recorded the following transactions involving capital assets.
Gain on the sale of unimproved land (held as an investment for 3 years) $ 3,000
Loss on the sale of a camper (purchased 2 years ago and used for family vacations) (5,000)
Gain on the sale of ADM stock (purchased 9 months ago as an investment) 4,000
Gain on the sale of a fishing boat and trailer (acquired 18 months ago at an auction and used for recreational purposes) 1,000
a. If Inez is in the 35% Federal income tax bracket, how much tax results?
b. If Inez is in the 15% bracket?
51. LO.6, 8 During the year, Chester incurred the following transactions involving capital assets.
Gain on the sale of an arrowhead collection (acquired as an investment at different times but all pieces have been held for more than one year) $ 6,000
Loss on the sale of IBM Corporation stock (purchased 11 months ago as an investment) ($4,000)
Gain on the sale of a city lot (acquired 5 years ago as an investment) 2,000
a. If Chester is in the 33% Federal income tax bracket, how much tax results?
b. If Chester is in the 15% bracket?
52. LO.9 Each year, Tom and Cindy Bates report itemized deductions of $10,000, including a $4,000 pledge payment to their church. Upon the advice of a friend, they do the following: in early January 2013, they pay their pledge for 2012; during 2013, they pay the pledge for 2013; and in late December 2013, they prepay their pledge for 2014.
a. Explain what the Bateses are trying to accomplish.
b. What will be the tax saving if their marginal tax bracket is 25% for all three years? (Assume that the standard deduction amounts for 2013 and 2014 are the same.)
c. Write a letter to Tom and Cindy Bates (8212 Bridle Court, Reston, VA 20194) summarizing your analysis.