Course Project Solutions
1. The Brocks will use the Married Filing Jointly filing status. The only other filing status that would be available is Married Filing Separately; however, there are generally unfavorable tax consequences with this filing status.
2. The Brocks will use Form 1040. They must use this form because of the their business, Westchester Wood. The income and expenses of Westchester Wood is reported on Schedule C, which is only available on Form 1040; Forms 1040-A and 1040-EZ do not accomodate income or losses related to businesses.
3. Who must file a tax return:
James and Pamela
Yes, must file a tax return David
No, not required; income is less than standard deduction Jennifer
No, not required; no earned or unearned income Ashley
Yes, must file a tax return because of unearned income William
Yes, must file a tax return because of income 4. Ashley"s unearned income and total tax are: Income from whatever source derived: Investment income
$ 3,800
-
Total income
3,800
Minus: Exclusions
Gross Income
Minus: Deductions for adjusted gross income (AGI)
Adjusted gross income (AGI)
Minus: Deductions from adjusted gross income (AGI) Standard deduction
1,000
(
1,000)
Taxable income
2,800
Calculation of net unearned income: Unearned income
Statutory deduction
Standard deduction
Net unearned income
$ 1,800
Computation of tax:
1,800
Parents" marginal tax rate
28%
Tax on unearned income
504
Difference between taxable income and net unearned income 1,000
Child"s tax rate (10%)
10%
100
Child"s total tax
$ 604
5. See Automatic Extension of Time to File (a .pdf document).
No, not required; income is less than standard deduction No, not required; no earned or unearned income Yes, must file a tax return because of unearned income Yes, must file a tax return because of income