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Mr. and Mrs. Maxwell are equal partners in Family partnership. The Maxwell's marginal tax rate is 35%. Next year, the partnership is expected to generate $200,000 of ordinary income. The Maxwells are considering transferring 20% interests in the partnership to each of their children. Their daughter, Melissa, has a 12% marginal tax rate. Their son, Mark, has a 22% marginal tax rate. Calculate the expected annual tax savings to the family from the proposed transfer of partnership interests.

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Answer:

The right answer is "$14,400". A further solution is provided below.

Explanation:

The given values are:

Ordinary income,

= 200,000

Maxwell's marginal rate,

= 35%

Melissa's marginal rate,

= 12%

Mark's marginal rate,

= 22%

Now,

Form transfer to Melissa, the savings will be:

= [tex]200000\times .2\times (35 - 12) \ percent[/tex]

= [tex]920 0[/tex] ($)

Form transfer to Mark, the savings will be:

= [tex]200000\times .2\times (35-22) \ percent[/tex]

= [tex]5200[/tex] ($)

hence,

The expected annual tax savings will be:

= [tex]9200+5200[/tex]

= [tex]14,400[/tex] ($)

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