Ivan Trent, age five, receive $2,900 of dividends per year from a mutual fund he owns; it is his only source of taxable income. Ivan's parents plan to gift a corporate bond they currently own to him. The bond pays $4,100 of interest income per year. Ivan's parents are in the 37% tax bracket. The individual income tax rate schedule that generally applies to a single taxpayer indicates a 10% tax rate until taxable income of $9,525. Ivan's family will save tax at the rate of 27% (37% - 10% tax rates) on the bond interest income if the parents transfer the bond to Ivan.
Answer the following statement true (T) or false (F)
False
The child is subject to kiddie tax because he already receives investment income in excess of the $2,100 threshold. The tax on the interest income from the bond owned by the child will increase to higher tax rates above taxable income of $2,550 under the tax rates effective under kiddie tax.
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