Can I file form 8814 for child's K-1 income?

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Can I file form 8814 for child's K-1 income?

Postby LMK5 » Wed Apr 03, 2013 11:03 am

My 3 kids each receive K-1s from a testamentary trust each year. On the K-1 it shows ordinary dividends, qualified dividends, and foreign taxes paid, all from mutual fund investments. For years I have been filing separate returns for them, but it is time consuming. Am I eligible to file a form 8814 for them and include the income on my individual return? Even if I can, is it financially advantageous for me to keep filing separate returns for them? BTW, the K-1 amounts for each child are about $4k and I live in CA.

Thanks for any guidance.
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Re: Can I file form 8814 for child's K-1 income?

Postby HouseStark » Wed Apr 03, 2013 2:41 pm

You need to file individual returns for the kids. A return reporting income from the trust will include Sched E page 2 identifying the trust as the source of the income. Since these children are presumably subject to the "kiddie tax" and their unearned income exceeds $1900, their returns would also include form 8615. Using the appropriate software, you could complete these returns on your own, but since the tax on the kids' return is linked to the income on your return, there are some complications that could easily be messed up. I would recommend against doing such returns by hand, unless you are exceptionally diligent and patient.
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Re: Can I file form 8814 for child's K-1 income?

Postby pshonore » Wed Apr 03, 2013 7:54 pm

Why would Interest, Dividends and Cap Gains (typical pass through items from a Trust), show up on Sched E or require an entry there? However I'm not sure you could claim the FTC on your return; thats another question.
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Re: Can I file form 8814 for child's K-1 income?

Postby LMK5 » Thu Apr 04, 2013 10:06 am

HouseStark wrote:You need to file individual returns for the kids. A return reporting income from the trust will include Sched E page 2 identifying the trust as the source of the income. Since these children are presumably subject to the "kiddie tax" and their unearned income exceeds $1900, their returns would also include form 8615. Using the appropriate software, you could complete these returns on your own, but since the tax on the kids' return is linked to the income on your return, there are some complications that could easily be messed up. I would recommend against doing such returns by hand, unless you are exceptionally diligent and patient.


HouseStark,

You are absolutely correct that Schedule E is included in the child's return, as well as Form 8615. So that forces the return to be filed separately? If so, I feel better after doing it for all these years.

I have been using TurboTax to do the returns, and yes, it is tedious, only because the software does not retrieve the needed numbers from the parent's return or the other childrens' returns as needed. You have to kind of do all 3 returns simultaneously, then do the same for the state. It's a shame that TurboTax isn't friendlier because it would be so easy for the program to fetch the needed data from the other files.

Each year I tell myself that I'll have a pro do it, but I just wind up doing it myself. I have had a CPA do it in the past, but I found that with the interview, the paper gathering, and the spoon-feeding of the info., I was already spending a lot of time on the returns and paying for their time. The last straw was when he finished them on the afternoon of April 15th one year.

Do you happen to know an excellent firm in SoCal that could do these returns in the future at a reasonable fee?

Thanks,

LMK5
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Re: Can I file form 8814 for child's K-1 income?

Postby HouseStark » Thu Apr 04, 2013 3:14 pm

pshonore wrote:Why would Interest, Dividends and Cap Gains (typical pass through items from a Trust), show up on Sched E or require an entry there? However I'm not sure you could claim the FTC on your return; thats another question.


I didn't say the income from a fiduciary return, which is reported on a K-1 Form 1041, would show up on the Schedule E page 2, I said the income source is identified there. That would be the case for other pass-through income, such as from a partnership (K-1 Form 1065) or a S-corporation (K-1 Form 1120S). Page 2 of the Schedule E specifies the source of pass-though income, listing the name, type and the entity EIN. It may list the income (or loss) there, depending upon its type.

And, no, a parent cannot claim any foreign tax credit for a child's income, even if the parent is able to report the income with the parent's return (Form 8814). The only such a foreign tax credit could be used would be if the child files a return.
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Re: Can I file form 8814 for child's K-1 income?

Postby HouseStark » Thu Apr 04, 2013 3:20 pm

HouseStark,

You are absolutely correct that Schedule E is included in the child's return, as well as Form 8615. So that forces the return to be filed separately? If so, I feel better after doing it for all these years.

I have been using TurboTax to do the returns, and yes, it is tedious, only because the software does not retrieve the needed numbers from the parent's return or the other childrens' returns as needed. You have to kind of do all 3 returns simultaneously, then do the same for the state. It's a shame that TurboTax isn't friendlier because it would be so easy for the program to fetch the needed data from the other files.

Each year I tell myself that I'll have a pro do it, but I just wind up doing it myself. I have had a CPA do it in the past, but I found that with the interview, the paper gathering, and the spoon-feeding of the info., I was already spending a lot of time on the returns and paying for their time. The last straw was when he finished them on the afternoon of April 15th one year.

Do you happen to know an excellent firm in SoCal that could do these returns in the future at a reasonable fee?

Thanks,

LMK5[/quote]

I am in Minneapolis and have no knowledge of SoCal firms. We do them, but usually charge an unreasonable fee.

As a tax pro, our professional tax software will link all the returns for parents and their children subject to the kiddie tax, so there is no re-entry of any information needed to do returns with Forms 8615. Once the data is all in, the final calculations are all done at once.

And, yes, form 8615 can only be used with separate returns for the children.
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Re: Can I file form 8814 for child's K-1 income?

Postby MarkNYC » Thu Apr 04, 2013 9:42 pm

HouseStark wrote:You need to file individual returns for the kids. A return reporting income from the trust will include Sched E page 2 identifying the trust as the source of the income.

I disagree. Leaving aside the issue of any foreign tax credits, there is no reason a parent cannot file Form 8814 in this situation. Schedule E is not relevant here because there is no Schedule E income to report - it's all Schedule B income.

There is nothing in the instructions to Form 8814 that precludes a parent from using the form to report a child's interest and dividends that flow from a Schedule K-1. The instructions to line 2a of the form make it pretty clear: "Also include ordinary dividends your child received through a partnership, S corporation, or estate or trust."

Whether or not it makes financial sense is a separate question.
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Re: Can I file form 8814 for child's K-1 income?

Postby LMK5 » Fri Apr 05, 2013 1:26 am

MarkNYC wrote:
HouseStark wrote:You need to file individual returns for the kids. A return reporting income from the trust will include Sched E page 2 identifying the trust as the source of the income.

I disagree. Leaving aside the issue of any foreign tax credits, there is no reason a parent cannot file Form 8814 in this situation. Schedule E is not relevant here because there is no Schedule E income to report - it's all Schedule B income.

There is nothing in the instructions to Form 8814 that precludes a parent from using the form to report a child's interest and dividends that flow from a Schedule K-1. The instructions to line 2a of the form make it pretty clear: "Also include ordinary dividends your child received through a partnership, S corporation, or estate or trust."

Whether or not it makes financial sense is a separate question.


Mark,

What about form 8615? Is that needed and can that be filed with form 8814? I know that form 8615 is required when I file separate returns for the kids.
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Re: Can I file form 8814 for child's K-1 income?

Postby MarkNYC » Fri Apr 05, 2013 7:56 am

LMK5 wrote:
MarkNYC wrote:
HouseStark wrote:You need to file individual returns for the kids. A return reporting income from the trust will include Sched E page 2 identifying the trust as the source of the income.

I disagree. Leaving aside the issue of any foreign tax credits, there is no reason a parent cannot file Form 8814 in this situation. Schedule E is not relevant here because there is no Schedule E income to report - it's all Schedule B income.

There is nothing in the instructions to Form 8814 that precludes a parent from using the form to report a child's interest and dividends that flow from a Schedule K-1. The instructions to line 2a of the form make it pretty clear: "Also include ordinary dividends your child received through a partnership, S corporation, or estate or trust."

Whether or not it makes financial sense is a separate question.


Mark,

What about form 8615? Is that needed and can that be filed with form 8814? I know that form 8615 is required when I file separate returns for the kids.


Form 8615 is used on the child's separately-filed tax return. It is not used when the child does not file a tax return, and instead the parent includes the child's investment income on the parent's return by use of Form 8814.
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Re: Can I file form 8814 for child's K-1 income?

Postby LMK5 » Fri Apr 05, 2013 10:00 am

MarkNYC wrote:
LMK5 wrote:
MarkNYC wrote:
HouseStark wrote:You need to file individual returns for the kids. A return reporting income from the trust will include Sched E page 2 identifying the trust as the source of the income.

I disagree. Leaving aside the issue of any foreign tax credits, there is no reason a parent cannot file Form 8814 in this situation. Schedule E is not relevant here because there is no Schedule E income to report - it's all Schedule B income.

There is nothing in the instructions to Form 8814 that precludes a parent from using the form to report a child's interest and dividends that flow from a Schedule K-1. The instructions to line 2a of the form make it pretty clear: "Also include ordinary dividends your child received through a partnership, S corporation, or estate or trust."

Whether or not it makes financial sense is a separate question.


Mark,

What about form 8615? Is that needed and can that be filed with form 8814? I know that form 8615 is required when I file separate returns for the kids.


Form 8615 is used on the child's separately-filed tax return. It is not used when the child does not file a tax return, and instead the parent includes the child's investment income on the parent's return by use of Form 8814.


Thanks Mark. It sounds like you're saying I have the option of doing form 8814 and not filing separate returns. Is that correct?
--If so, are there any financial advantages to filing separate returns?
--If there are foreign tax credits on the K-1, does this mean a separate return is required? If so, can I have the foreign tax credits allocated to the trust so it doesn't flow through to the kids' K-1?

Thanks,

Larry
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