 |
 |
 |
|||||||
 |
 |
||||||||
 |
|||||||||
|
|||||||||
Kiddie Tax
By Dr. John L. Stancil
Tax Analyst, WebTaxCenter.com
If your dependent child has investment income, you may be subject to what is commonly referred to as the "kiddie tax." Investment income is income such as dividends, interest, and capital gains. The IRS defines investment income as all income other than salaries, wages, and other amounts received as pay for work actually done.
If your child is under age 18 at the end of the year and has investment income of more than $1,700, the amount above $1,700 will be taxed at the parent's marginal rate. The age has increased for 2006. Prior to 2006 the age limit was 14. The first $850 of your child's income would not be subject to tax. The next $850 would be taxed at the child's rate (most likely 10%). Any investment income in excess of that amount would be taxed at the parent's marginal rate.
You may choose to report your child's earnings on your return. If you do this, you should complete Form 8814. This will result in an increased adjusted gross income for you. If you make this election, the child does not have to file a return.
You may be eligible to use Form 8615. This form is included with your return, but a separate return will be filed for the child. This will normally result in a lower tax. You can use Form 8615 if all the following apply to you:
- The child is under age 18 at the end of the year.
- The child is required to file a return due to his/her income level.
- The child's investment income exceeded $1,700.
Dr. John L. Stancil, a tax analyst for WebTaxCenter.com, has been a member of the Florida Southern College faculty since 1998. He received his bachelors degree from Mars Hill College and holds a M.B.A. from the University of Georgia. He later earned his doctorate in accounting from the University of Memphis. He holds four professional certifications, including CPA, CMA, CFM and CIA. Stancil has received the Florida Institute of CPAs 2005 Outstanding CPA in Public Service Award. (This award is given annually to a Florida CPA who has demonstrated significant contributions through community and civic activities.) He has also been recognized as the Expert of the Month on several occasions by allexperts.com.
 |
© 2005-2010 webTAXcenter.com, a TaxHawk, Inc. owned and operated web site