Kiddie Tax 2018 - Who must file

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opus360
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Kiddie Tax 2018 - Who must file

Post by opus360 » Wed Aug 08, 2018 4:05 pm

Who must file kiddie tax return (not sure what form it is called) for tax year 2018 assuming kid only has unearned income consisting of long-term capital gains?

Is it those with unearned income of $1050 or more? $2100 or more? Is it know at this time?

Silk McCue
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Re: Kiddie Tax 2018 - Who must file

Post by Silk McCue » Wed Aug 08, 2018 5:08 pm

I have no clue but can Google “kiddie tax 2018”.

https://www.marketwatch.com/story/the-k ... 2018-05-24

How much income triggers a separate tax return?
It depends on the type of income.

• A child with only earned income (generally just wages and salary) must file if gross income exceeds the $12,000 standard deduction for a single taxpayer.

• A child with only unearned income (interest, dividends and capital gains) must file if gross income is more than $1,050.

• A child with both earned and unearned income must file if the total amount exceeds the larger of $1,050 or the earned income plus $350.

If a tax return isn’t required, the child’s income won’t be taxed. The parent can still claim the child as a dependent regardless of whether the income is taxed. Just remember that the new tax law eliminates the deduction for children, although that may be more than offset by the more generous child tax credit.
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RetiredAL
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Re: Kiddie Tax 2018 - Who must file

Post by RetiredAL » Wed Aug 08, 2018 7:24 pm

Silk McCue wrote:
Wed Aug 08, 2018 5:08 pm
I have no clue but can Google “kiddie tax 2018”.

https://www.marketwatch.com/story/the-k ... 2018-05-24

How much income triggers a separate tax return?
It depends on the type of income.

• A child with only earned income (generally just wages and salary) must file if gross income exceeds the $12,000 standard deduction for a single taxpayer.

• A child with only unearned income (interest, dividends and capital gains) must file if gross income is more than $1,050.

• A child with both earned and unearned income must file if the total amount exceeds the larger of $1,050 or the earned income plus $350.

If a tax return isn’t required, the child’s income won’t be taxed. The parent can still claim the child as a dependent regardless of whether the income is taxed. Just remember that the new tax law eliminates the deduction for children, although that may be more than offset by the more generous child tax credit.
Cheers
Thank you Mr McCue. That's the most concise article I've seen to date.

It's of significance to me, as I annually Gain Harvest a UTMA to minimized a tax surprise when my Grandson taps that money.

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Peter Foley
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Re: Kiddie Tax 2018 - Who must file

Post by Peter Foley » Wed Aug 08, 2018 7:46 pm

Unless the law has changed, sometimes one does not have to "file" a child's tax return. Their income can be reported on their parent's return.

If this has changed I would like to know as I do tax returns for my children and their children (my grandchildren) have small UTMA accounts.

Silk McCue
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Re: Kiddie Tax 2018 - Who must file

Post by Silk McCue » Wed Aug 08, 2018 8:05 pm

Peter Foley wrote:
Wed Aug 08, 2018 7:46 pm
Unless the law has changed, sometimes one does not have to "file" a child's tax return. Their income can be reported on their parent's return.

If this has changed I would like to know as I do tax returns for my children and their children (my grandchildren) have small UTMA accounts.
From my reading of the article and another I found through the search it appears that the child’s return is completely separate from the parents. A completely different set of tax rates are used and their is no interaction between the parents and childrens’ (plural) returns. I, however, have zero knowledge on this subject apart what I have researched and shared here today.

Cheers

DIFAR31
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Re: Kiddie Tax 2018 - Who must file

Post by DIFAR31 » Wed Aug 08, 2018 8:52 pm

Silk McCue wrote:
Wed Aug 08, 2018 8:05 pm
Peter Foley wrote:
Wed Aug 08, 2018 7:46 pm
Unless the law has changed, sometimes one does not have to "file" a child's tax return. Their income can be reported on their parent's return.

If this has changed I would like to know as I do tax returns for my children and their children (my grandchildren) have small UTMA accounts.
From my reading of the article and another I found through the search it appears that the child’s return is completely separate from the parents. A completely different set of tax rates are used and their is no interaction between the parents and childrens’ (plural) returns. I, however, have zero knowledge on this subject apart what I have researched and shared here today.

Cheers
From IRS pub 17:

Parent's Election To Report Child's Interest and Dividends

You may be able to elect to include your child's interest and dividend income (including capital gain distributions) on your tax return. If you do, your child won't have to file a return.

You can make this election only if all the following conditions are met.

-Your child was under age 19 (or under age 24 if a full-time student) at the end of the year.
-Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends).
-The child's gross income was less than $10,500.
-The child is required to file a return unless you make this election.
-The child doesn't file a joint return for the year.
-No estimated tax payment was made for the year, and no overpayment from the previous year (or from any amended re-turn) was applied to this year under your child's name and social security number.
-No federal income tax was taken out of your child's income under the backup with-holding rules.
-You are the parent whose return must be used when applying the special tax rules for children. (See Which Parent's Return To Use, earlier.)


https://www.irs.gov/pub/irs-pdf/p17.pdf

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Peter Foley
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Re: Kiddie Tax 2018 - Who must file

Post by Peter Foley » Wed Aug 08, 2018 10:32 pm

Thanks DIFAR31 - that is the law as I understand it and as I have been applying it for the past few years.

However, the Pub. 17 referenced is 2017. Has this provision changed for 2018?

daveydoo
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Re: Kiddie Tax 2018 - Who must file

Post by daveydoo » Wed Aug 08, 2018 10:47 pm

Hijack alert, but this came up on another thread:

If I gift appreciated stock to my child, who then immediately sells it to pay for college, is there an advantage here? I presume they can take the basis at the time of the gift. My kids file their own taxes but they still receive > 50% of their "support" from me (e.g., tuition) so I can still claim them as dependents. Since this might end up being in excess of the gift limit (= spendy schools), I would have no objection to filing this with IRS.

The kiddie tax would not seem to come into play since there was no appreciation during the brief window when the kid held the shares.

Any thoughts...?
"I mean, it's one banana, Michael...what could it cost? Ten dollars?"

mega317
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Re: Kiddie Tax 2018 - Who must file

Post by mega317 » Wed Aug 08, 2018 11:30 pm

No you gift the basis as well. (With some caveats but nothing you can take advantage of.)

daveydoo
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Re: Kiddie Tax 2018 - Who must file

Post by daveydoo » Thu Aug 09, 2018 12:01 am

mega317 wrote:
Wed Aug 08, 2018 11:30 pm
No you gift the basis as well. (With some caveats but nothing you can take advantage of.)
OK, thanks -- I mis-read online. The valuation for gift tax is the present-day valuation but for income tax it's the original basis.

And then, if sold, I assume the kiddie tax comes into play with even a small amount of LTCG at my rate and not kid's low rate.
"I mean, it's one banana, Michael...what could it cost? Ten dollars?"

986racer
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Re: Kiddie Tax 2018 - Who must file

Post by 986racer » Thu Aug 09, 2018 4:56 am

I thought the rules changed for 2018. Be very careful if you are using a 2017 publication and thinking it applies for 2018.

My understanding is that the child is now taxed separately from the parent but that the child’s tax rates are the same rates that a trust uses, not a normal individual’s rates. This is true for both earned income and for taxable gains.

UncleBogle
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Re: Kiddie Tax 2018 - Who must file

Post by UncleBogle » Thu Aug 09, 2018 5:43 am

Along the same vain, if a child is getting withholding from his / her paycheck, wouldn't it also be a good idea for them to file a tax form even if the threshold is not met? My understanding is that there is the possibility that they might get back the amount that was taxed. Is this correct?

986racer
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Re: Kiddie Tax 2018 - Who must file

Post by 986racer » Thu Aug 09, 2018 10:42 am

UncleBogle wrote:
Thu Aug 09, 2018 5:43 am
Along the same vain, if a child is getting withholding from his / her paycheck, wouldn't it also be a good idea for them to file a tax form even if the threshold is not met? My understanding is that there is the possibility that they might get back the amount that was taxed. Is this correct?
Most children should check the “exempt” box on the W-4 form. If they make under 12000, they shouldn’t owe taxes. If taxes were withheld, they will need to file a 1040EZ to get those taxes back.

DIFAR31
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Re: Kiddie Tax 2018 - Who must file

Post by DIFAR31 » Thu Aug 09, 2018 11:30 am

Peter Foley wrote:
Wed Aug 08, 2018 10:32 pm
Thanks DIFAR31 - that is the law as I understand it and as I have been applying it for the past few years.

However, the Pub. 17 referenced is 2017. Has this provision changed for 2018?
Not that I know of, but we'll have to wait until the 2018 forms and pubs are released.

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HueyLD
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Re: Kiddie Tax 2018 - Who must file

Post by HueyLD » Thu Aug 09, 2018 12:30 pm

Peter Foley wrote:
Wed Aug 08, 2018 7:46 pm
Unless the law has changed, sometimes one does not have to "file" a child's tax return. Their income can be reported on their parent's return.

If this has changed I would like to know as I do tax returns for my children and their children (my grandchildren) have small UTMA accounts.
Yes, the computation of kiddie tax has been changed by the TCJA.

Nolo.com has an up to date article for this subject. Here is the link. This is among the best write-up I found. Obviously, the IRS will have forms, instructions and pubs out by the end of the year. But this one from Nolo.com is worth your time.

https://www.nolo.com/legal-encyclopedia ... 30003.html

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Peter Foley
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Re: Kiddie Tax 2018 - Who must file

Post by Peter Foley » Thu Aug 09, 2018 12:52 pm

Thanks HueyLD. It was a clear explanation and worth reading.

I imagine that there will be a number of people who will have to file an additional return just to report relatively small amounts of a child's unearned income. We had horrible filing complexity when the law was changed in the mid 1980's. We had savings bonds in both children's names and had opted to declare interest annually. What a mess!

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