John transfers investment securities worth $200,000 with a tax basis of $130,000 to a trust, naming himself as trustee.

1. John transfers investment securities worth $200,000 with a tax basis of $130,000 to a trust, naming himself as trustee. The terms of the trust agreement require the trustee to pay all dividends and interest to John’s brother, Dale. John has the right to revoke the trust at any time and take back title to the securities. During the trust’s first year, John, as trustee, distributes $20,000 in dividends and $10,000 interest from the securities to Dale. None of the income was tax exempt. In a Word Document, respond to the following questions using 2016 tax regulations:

a) How much gross income does Dale recognize from the payments? Show your calculations. b) How much gross income does John recognize from the above? Show your calculations.

2. On January 15 of the current year, Joyce, age 24, receives stock worth $28,000 as a gift from her parents. Her parents jointly purchased the stock six years ago for $12,000. During the year, Joyce receives $2,100 dividend income on the stock. In December, she sells the stock for $39,000. In a Word Document, respond to the following questions using 2016 tax regulations: a) Assuming this is Joyce’s only income for the year, and her parents are in the 33 percent marginal tax bracket, how much income tax does the family save as a result of this gift? Show your calculations. b) Are there any transfer taxes as a result of this gift? Explain. Show your calculations. Review the applicable tax publications and forms and respond in a Word Document to the Unit 4: Final Dropbox. View the rubric below for grading details.

 

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