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Problem Set #2
1. Gina is 20 years old and a fulltime student. She is claimed as a dependent by her parents who are in the 25% tax
bracket. Gina has $4,000 of interest income on corporate bonds and she earned $2,700 in a parttime job. Compute her
tax liability. (Hints: don’t forget the special rules for a dependent’s standard deduction. And don’t forget to compute
net unearned income (NUI) for the kiddie tax rules: they apply to her.)
2. Tom buys an annuity for $48,000 that will start paying him $5,000 a year at age 70. (a) How much income does he
have when he receives the first $5,000 payment? (Use the life expectancy table in Ch 4 in your textbook to discover
the life expectance at age 70 is 16 years.) (b) If he is still alive and receiving payments at age 90, how much of each
payment is taxable? (c) If he dies at age 77 after receiving only 7 payments, how much can he deduct on his final tax
return?
3. Ellen receives group term life insurance coverage in the amount of $70,000 starting on March 1
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 Spring '11

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