Problem 2-A

# Problem 2-A - Problem Set#2 with answers 1 Gina is 20 years...

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Problem Set #2 with answers 1. Gina is 20 years old and a full-time 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 part-time 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.) Ans: To get taxable income: Gross income is \$6,700. Standard deduction is \$3,000 (the greater of (a) \$950, and (b) earned income plus \$300 (\$3,000). So taxable income is \$3,700. Of this \$3,700, the NUI is taxed at 25% (the parent’s rate). NUI here is \$2,100 (\$4,000 minus \$1,900). So of the \$3,700 taxable income, \$2,100 is taxed at 25% (=\$525) and the rest (\$1,600) is taxed at the child’s regular 10% rate (=\$160). Total tax: \$685. 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

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## This note was uploaded on 09/30/2011 for the course ECO 373 taught by Professor Qq during the Spring '11 term at CUNY Hunter.

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Problem 2-A - Problem Set#2 with answers 1 Gina is 20 years...

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