James Brock operates a business selling unfinished furniture from a building he owns. James Brock is the sole proprietor of Westchester Wood. The business operates Thursday through Sunday. Net income ranges from $24,000 to $40,000.
Ashley receives unearned income in the amount of $3,800 from investments her Grandmother left her in her will. The Brocks have instructed the brokerage firm to reinvest all of the income from these investments.
William, James’ father, is 66 years old.
The Brocks, based on a preliminary calculation, are expected to owe $2,200 when they have completed their tax return; however, all of the detail information that you would need to prepare their return, including information related to Westchester Wood is not yet available and is not expected to be available until the middle of May.
1- Prepare a brief summary that identifies the filing status the Brocks (James and Pamela) will use when filing their individual tax return. Please explain the reasons for making your selection.
2- Within the same summary, indicate which tax form the Brocks will use and why.
3- Prepare a schedule showing which members of the Brock household are required to file a tax return.
4-Compute Ashley’s net unearned income and her total tax. Please show all calculations. Ashley’s tax rate is 10% and her parents’ marginal rate is 28%.
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