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18 October, 06:14

Ward and June are in the 32% tax bracket. A bond of Dell Computer Corporation with a face value of $10,000 is included in their assets. The bond pays $1,000 interest annually. Ward and June gift the bond to their son, Wally (age 19), on January 1, 2019. Wally is in the 12% tax bracket. The 2019 net tax savings for the family unit of Ward, June, and Wally related to the transfer of the bond is:

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  1. 18 October, 06:18
    0
    Tax Savings = 200

    Explanation:

    If Ward and June carry the bond, tax would be:

    ⇒ Interests * tax rate

    ⇒ 1000 * 32% = 320

    They gift bond to their son, Wally, whose tax would be:

    ⇒ Interests * tax rate

    ⇒ 1000 * 12% = 120

    The tax savings related to the transfer of Bond is:

    ⇒ 320 - 120 = 200
  2. 18 October, 06:21
    0
    at least $200

    Explanation:

    Currently Ward and June are paying $1,000 x 32% = $320 in taxes for interest yielded Dell's bond.

    Assuming Wally (their son) is actually making more than $12,200 per year (standard deduction), then he would pay only $1,000 x 12% = $120 in taxes for the same bond.

    Since the gift's value ($10,000) is below the gift tax threshold ($15,000) they will not pay any additional taxes.

    So their net savings are at least $320 - $120 = $200, and could be higher, up to $320 depending on Wally's gross income.
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