Your Child's Investment Income - tax implications - John R. Dundon II, Enrolled Agent
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Your Child’s Investment Income – tax implications

Your Child’s Investment Income – tax implications

The following facts will help parents determine whether their child’s investment income will be taxed at the parents’ rate or the child’s rate.

  1. Investment Income Children with investment income may have part or all of this income taxed at their parents’ tax rate rather than at the child’s rate. Investment income includes interest, dividends, capital gains and other unearned income.

  2. Age Requirement The child’s tax must be figured using the parents’ rates if the child has investment income of more than $1,900 and meet one of three age requirements for 2009: The child was born after January 1, 1992. The child was born after January 1, 1991, and before January 2, 1992, and has earned income that does not exceed one-half of their own support for the year. The child was born after January 1, 1986, and before January 2, 1991, and a full-time student with earned income that does not exceed one-half of the child’s support for the year.

  3. Form 8615 To figure the child’s tax using the parents’ rate for the child’s return, fill out Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900, and attach it to the child’s federal income tax return.

  4. Form 8814 When certain conditions are met, a parent may be able to avoid having to file a tax return for the child by including the child’s income on the parent’s tax return. In this situation, the parent would file Form 8814, Parents’ Election To Report Child’s Interest and Dividends.

Links:
Form 8615, Tax for Children Under Age 18 With Investment Income of More Than $1,800 (PDF 49K)
Form 8615, Instructions (PDF 24K)
Form 8814, Parent’s Election to Report Child’s Interest and Dividends (PDF 43K)
Publication 929, Tax Rules for Children and Dependents (PDF 220K)



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