LO7 Leroy and Amanda are married and have three dependent children. During the current year, they have the following income and expenses:

a. What is Leroy and Amanda’s current year taxable income and income tax liability?

b. Leroy and Amanda would like to lower their income tax. How much income tax will they save if they validly transfer $5,000 of the interest income to each of their children? Assume that the children have no other income and that they are entitled to a $950 standard deduction but are not allowed a personal exemption deduction.

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Salaries Interest income $110,000 45,000 Royalty income 27,000 Deductions for AGI 3,000 Deductions from AGI 9,000