Taxing Your Child"s Investment Income
There are many incometax rules in relation to investment earnings.
There are also many income tax rules in relation to children earning money.
When you combine the two of these tax situations, things can get very technical.
There are several ways that investment income can be taxed and several ways that dependent and non-dependent children can be taxed.
So, be careful to understand your options when taxes are applied to your child's investment income.
There are two ways that your child's investment income can be taxed.
It can be taxed at your rate or your child's rate.
There are a few factors that help determine this.
Investment income is derived from capital gains, interest, dividends and unearned income.
The child's income must be calculated at the parents' tax rate if the child in question had an investment income in excess of $1900 and was born after January 1, 1992, or the child was born after January 1, 1991 and before January 2, 1992, or the child was born after January 1, 1986, but before January 2, 1991 and is a full time student.
In the event that the child has an earned income that exceeds 50% of his or her annual support, the tax will have to be calculated at the child's rate.
You will need to fill out IRS Form 8615 in order to calculate the child's tax, using the parents' rate, on the child's return.
Attach this form to the child's income tax return.
Under particular conditions, a parent can avoid having the child file an income tax return by reporting the child's investment income on the parents' income tax return.
Under these circumstances, the parents need to file IRS Form 8814 entitled, Parents' Election to Report Child's Interest and Dividends.
Further information can be found in IRS Publication 929, Tax Rules for Children and Dependents, or by going to the Internal Revenue Service website @IRS.
gov.
There are also many income tax rules in relation to children earning money.
When you combine the two of these tax situations, things can get very technical.
There are several ways that investment income can be taxed and several ways that dependent and non-dependent children can be taxed.
So, be careful to understand your options when taxes are applied to your child's investment income.
There are two ways that your child's investment income can be taxed.
It can be taxed at your rate or your child's rate.
There are a few factors that help determine this.
Investment income is derived from capital gains, interest, dividends and unearned income.
The child's income must be calculated at the parents' tax rate if the child in question had an investment income in excess of $1900 and was born after January 1, 1992, or the child was born after January 1, 1991 and before January 2, 1992, or the child was born after January 1, 1986, but before January 2, 1991 and is a full time student.
In the event that the child has an earned income that exceeds 50% of his or her annual support, the tax will have to be calculated at the child's rate.
You will need to fill out IRS Form 8615 in order to calculate the child's tax, using the parents' rate, on the child's return.
Attach this form to the child's income tax return.
Under particular conditions, a parent can avoid having the child file an income tax return by reporting the child's investment income on the parents' income tax return.
Under these circumstances, the parents need to file IRS Form 8814 entitled, Parents' Election to Report Child's Interest and Dividends.
Further information can be found in IRS Publication 929, Tax Rules for Children and Dependents, or by going to the Internal Revenue Service website @IRS.
gov.
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