| 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 |
| | | | | - 0 |
| | | | | - 0 |
| Total income | | | | 3,800 |
| Minus: Exclusions | | | | - 0 |
| Gross Income | | | | 3,800 |
| Minus: Deductions for adjusted gross income (AGI) | | | | - 0 |
| Adjusted gross income (AGI) | | | | 3,800 |
| Minus: Deductions from adjusted gross income (AGI) |
| Standard deduction | | 1,000 |
| | | - 0 |
| | | - 0 | | (1,000) |
| Taxable income | | | | 2,800 |
| Calculation of net unearned income: |
| Unearned income | | $ 3,800 |
| Statutory deduction | | (1,000) |
| Standard deduction | | (1,000) |
| Net unearned income | | $ 1,800 |
| Computation of tax: |
| Net unearned income | | 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). |
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