Hera wants to reduce her income tax liability by shifting some of her income to her 10-year-old daughter (a dependent), Athena. Last year, Hera gifted corporate bonds to Athena. This year, Athena received $1,550 in interest income from the bonds. What amount of tax will Athena pay on the interest income?
What will be an ideal response?
$45.
The kiddie tax only potentially applies when unearned income exceeds $2,200. Here Athena's taxable income is $450 ($1,550 minus $1,100 standard deduction). Athena's tax on $450 of taxable income is $45 ($450 × 10%).
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