There are incomplete and/or incorrect statements in this post.
RetiredAL wrote: ↑
Sat Oct 26, 2019 2:07 pm
OK, up to something like $10k - $12k, you can include a minor's income on your tax return.
You can only elect to report a dependent's income on your tax return if their AGI < $11,000 (2019) and they have no capital gains
(distributions are ok). Also, there are several other requirements. See Topic No. 553 Tax on a Child's Investment and Other Unearned Income (Kiddie Tax)
But whey would you want to do so when the first $4760 of unearned income for the minor is essentially Tax Free?
For 2019 the amount is $4850 and it is only tax free if the amount of unearned income subject to ordinary income taxes is <= the standard deduction applied again unearned income. This is $1100 with no un
earned income, $350 if earned income is >=$750 and < $11,850 and $0 if earned income is >= $12,200
The next $10K on unearned income is at the 10% rate.
Not remotely true
- Unearned ordinary income <= ($4800 - the above standard deduction) is subject to a 10% tax rate. The rate on the next $6700 is 24%, the next $3450 is 35% and rate after is 37%
- Unearned capital gains and qualified dividends up to total unearned income <= $4850 is subject to a 0% tax rate. The rate on the next $10,300 is 15% and the rate after is 20%, with the NIIT kicking in @$12,750.
A UTMA is a standardized "trust" that is created by you the custodian filling out an account form for the UTMA because a minor can't own an account.
Not true, a UTMA is not a trust of any kind, it is simply a custodial account. The use of trust tax brackets for Kiddie Taxes was purely based on tax changes in the TCJA of 2018.
However, "Kiddie Tax" rules requiring the use of "Trust Tax Rates are much broader than just UTMA income. If you have a 17 year old working and earning $50K a year, the tax rate he would have to use for his tax return is the Trust Tax Rate. Why? That's the law.
This is NOT the law and is not true. Earned income of dependents like all other tax payers is and has always been subject to the same standard/itemized deductions and tax brackets. Earned income affects the amount of the standard deduction that can be applied against unearned income as pointed out above and unearned income is included in the taxpayers AGI.
Only a dependent's unearned income is subject to the Kiddie Tax rules and the trust tax brackets.
Now adding earned income to a minor's income stream can force the minor into higher tax rates sooner than if filed under their parent. OK, the application of taxes is not always fair. For most minor's, these newer rates ( Trust ) are advantageous. These rules were developed keep the very rich from avoiding the taxman's bite by transferring $ to their minor children. Having and maintaining a $50M family trust creates a heft tax bill. I'd like to be in that predicament.
Again this is not true. The change in the Kiddie Tax rules to using trust tax brackets is beneficial in majority of cases rather than at the parent's marginal brackets. It now pretty much levels the playing field between UTMA accounts and Trust accounts. With the UTMA account actually having additional tax-free/lower tax space. Trusts assets in tax efficient investments and judicious use of tax efficient distributions of earnings to beneficiaries can allow the trust to have quite manageable to no tax bills.