Tax Reform - Revised Kiddie Tax

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TIAX
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Tax Reform - Revised Kiddie Tax

Post by TIAX » Mon Dec 25, 2017 1:20 pm

Previously, a child's unearned income above $2100 was taxed at the parents' marginal tax rate. The TCJA revises the Kiddie Tax law such that unearned income above $2100 is now taxed at the new Trusts rates. It thus now makes sense to exceed the $2100 threshold up to whatever Trusts bracket is below the parent's marginal tax rate. For example, if the parents' marginal tax rate is 37%, it would make sense to tax gain harvest the child's account up to the top of the 35% Trusts bracket.

Is there any reason tax gain harvest the child's account up to the same Trusts bracket as the parents' marginal tax rate. For example, would it make sense to tax gain harvest the child's account into the 37% Trusts bracket if the parent is in a 37% marginal tax rate? (I'm thinking perhaps there are some kind of phase-outs where it would make sense)
Last edited by TIAX on Mon Dec 25, 2017 1:26 pm, edited 1 time in total.

livesoft
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Re: Revised Kiddie Tax under TCJA

Post by livesoft » Mon Dec 25, 2017 1:26 pm

TIAX wrote:
Mon Dec 25, 2017 1:20 pm
Previously, a child's unearned income above $2100 was taxed at the parents' marginal tax rate.
I don't think this is true and never was true. Parents' marginal tax rate is NOT the same as their tax rate on unearned income which could be as low as 0%.
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TIAX
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Re: Revised Kiddie Tax under TCJA

Post by TIAX » Mon Dec 25, 2017 1:31 pm

livesoft wrote:
Mon Dec 25, 2017 1:26 pm
TIAX wrote:
Mon Dec 25, 2017 1:20 pm
Previously, a child's unearned income above $2100 was taxed at the parents' marginal tax rate.
I don't think this is true and never was true. Parents' marginal tax rate is NOT the same as their tax rate on unearned income which could be as low as 0%.
Thanks for the correction livesoft. Perhaps you can clarify how it was taxed.

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Re: Tax Reform - Revised Kiddie Tax

Post by livesoft » Mon Dec 25, 2017 1:33 pm

It is taxed at the parents' unearned income tax rate per the Qualified Dividends and Capital Gains tax worksheet. Yes, interest income and short-term capital gains were taxed at the parents' marginal income tax rate, but children (nor their parents) should not have such kinds of unearned income if they have tax savvy parents.

Yes, the law is changed for 2018.
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TIAX
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Re: Tax Reform - Revised Kiddie Tax

Post by TIAX » Mon Dec 25, 2017 1:42 pm

Thanks. Since the new law no longer uses the preferential treatment for Kiddie income, would it make sense to shift non-qualified dividends/gains to children?

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happymob
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Re: Tax Reform - Revised Kiddie Tax

Post by happymob » Mon Dec 25, 2017 1:52 pm

If parents are in the new 12% bracket, it seems like trust rates for the kids will very quickly exceed the parents rate.

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Re: Tax Reform - Revised Kiddie Tax

Post by letsgobobby » Mon Dec 25, 2017 1:52 pm

seems like livesoft and kitces are not in agreement. my world is shaken. need sscritic to break the tie.

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Re: Tax Reform - Revised Kiddie Tax

Post by livesoft » Mon Dec 25, 2017 3:21 pm

To be clear I am not writing about the 2018 rules.
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Re: Tax Reform - Revised Kiddie Tax

Post by HueyLD » Mon Dec 25, 2017 4:17 pm

happymob wrote:
Mon Dec 25, 2017 1:52 pm
If parents are in the new 12% bracket, it seems like trust rates for the kids will very quickly exceed the parents rate.
Exactly.

The trust/estate brackets can climb to 35% and 37% in a flash.

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Re: Tax Reform - Revised Kiddie Tax

Post by letsgobobby » Mon Dec 25, 2017 4:42 pm

livesoft wrote:
Mon Dec 25, 2017 1:33 pm
It is taxed at the parents' unearned income tax rate per the Qualified Dividends and Capital Gains tax worksheet. Yes, interest income and short-term capital gains were taxed at the parents' marginal income tax rate, but children (nor their parents) should not have such kinds of unearned income if they have tax savvy parents.

Yes, the law is changed for 2018.
kitces seems to be saying it was taxed at their marginal rate.
.

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Re: Tax Reform - Revised Kiddie Tax

Post by HueyLD » Mon Dec 25, 2017 4:50 pm

letsgobobby wrote:
Mon Dec 25, 2017 4:42 pm
livesoft wrote:
Mon Dec 25, 2017 1:33 pm
It is taxed at the parents' unearned income tax rate per the Qualified Dividends and Capital Gains tax worksheet. Yes, interest income and short-term capital gains were taxed at the parents' marginal income tax rate, but children (nor their parents) should not have such kinds of unearned income if they have tax savvy parents.

Yes, the law is changed for 2018.
kitces seems to be saying it was taxed at their marginal rate.
It is taxed at parents’ marginal tax rate for non qualified dividends and short term capital gain. However, QDI and LTCG are still taxed at preferred rates on parents’ return.

The above is for the law in effect today.

It will change in 2018 when kiddie’s unearned income will be taxed at trust/estate rates.

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Re: Tax Reform - Revised Kiddie Tax

Post by letsgobobby » Mon Dec 25, 2017 4:52 pm

HueyLD wrote:
Mon Dec 25, 2017 4:50 pm
letsgobobby wrote:
Mon Dec 25, 2017 4:42 pm
livesoft wrote:
Mon Dec 25, 2017 1:33 pm
It is taxed at the parents' unearned income tax rate per the Qualified Dividends and Capital Gains tax worksheet. Yes, interest income and short-term capital gains were taxed at the parents' marginal income tax rate, but children (nor their parents) should not have such kinds of unearned income if they have tax savvy parents.

Yes, the law is changed for 2018.
kitces seems to be saying it was taxed at their marginal rate.
It is taxed at parents’ marginal tax rate for non qualified dividends and short term capital gain. However, QDI and LTCG are still taxed at preferred rates on parents’ return.

The above is for the law in effect today.

It will change in 2018 when kiddie’s unearned income will be taxed at trust/estate rates.
got it for 2017, thanks.

and in 2018, will qualified and nonqualified unearned income all be taxed at trust rates?

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Re: Tax Reform - Revised Kiddie Tax

Post by metalworking » Mon Dec 25, 2017 4:55 pm

HueyLD wrote:
Mon Dec 25, 2017 4:50 pm
letsgobobby wrote:
Mon Dec 25, 2017 4:42 pm
...
kitces seems to be saying it was taxed at their marginal rate.
It is taxed at parents’ marginal tax rate for non qualified dividends and short term capital gain. However, QDI and LTCG are still taxed at preferred rates on parents’ return.

The above is for the law in effect today.

It will change in 2018 when kiddie’s unearned income will be taxed at trust/estate rates.
So now i am wondering if i did it wrong in previous years. We have been paying kiddie tax on part of our daughters college scholarship used for housing. We have been paying tax at our marginal tax rate. Have we been doing it correctly?

[ Quote fixed by admin LadyGeek]

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Re: Tax Reform - Revised Kiddie Tax

Post by LadyGeek » Mon Dec 25, 2017 4:57 pm

The wiki was recently revised for the 2018 tax changes. See: Kiddie tax

If anyone has a suggestion to clarify the content, or notices an error, please post here.
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Re: Tax Reform - Revised Kiddie Tax

Post by HueyLD » Mon Dec 25, 2017 5:00 pm

The conference agreement follows the House bill and generally retains present-law maximum rates on net capital gains and qualified dividends, including estates and trusts.

However, estates/trusts have very low ceiling for maximum cap gain rate and 3.8% ACA surtax and those wil not change in 2018.

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Re: Tax Reform - Revised Kiddie Tax

Post by HueyLD » Mon Dec 25, 2017 5:12 pm

metalworking wrote:
Mon Dec 25, 2017 4:55 pm
HueyLD wrote:
Mon Dec 25, 2017 4:50 pm
letsgobobby wrote:
Mon Dec 25, 2017 4:42 pm
...
kitces seems to be saying it was taxed at their marginal rate.
It is taxed at parents’ marginal tax rate for non qualified dividends and short term capital gain. However, QDI and LTCG are still taxed at preferred rates on parents’ return.

The above is for the law in effect today.

It will change in 2018 when kiddie’s unearned income will be taxed at trust/estate rates.
So now i am wondering if i did it wrong in previous years. We have been paying kiddie tax on part of our daughters college scholarship used for housing. We have been paying tax at our marginal tax rate. Have we been doing it correctly?

[ Quote fixed by admin LadyGeek]
Scholarship used for housing is considered ordinary unearned income not eligible for preferred tax rates like QDI or LTCG.

metalworking
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Re: Tax Reform - Revised Kiddie Tax

Post by metalworking » Mon Dec 25, 2017 5:21 pm

HueyLD wrote:
Mon Dec 25, 2017 5:12 pm
metalworking wrote:
Mon Dec 25, 2017 4:55 pm
HueyLD wrote:
Mon Dec 25, 2017 4:50 pm
letsgobobby wrote:
Mon Dec 25, 2017 4:42 pm
...
kitces seems to be saying it was taxed at their marginal rate.
It is taxed at parents’ marginal tax rate for non qualified dividends and short term capital gain. However, QDI and LTCG are still taxed at preferred rates on parents’ return.

The above is for the law in effect today.

It will change in 2018 when kiddie’s unearned income will be taxed at trust/estate rates.
So now i am wondering if i did it wrong in previous years. We have been paying kiddie tax on part of our daughters college scholarship used for housing. We have been paying tax at our marginal tax rate. Have we been doing it correctly?

[ Quote fixed by admin LadyGeek]
Scholarship used for housing is considered ordinary unearned income not eligible for preferred tax rates like QDI or LTCG.
Thanks for that

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Re: Tax Reform - Revised Kiddie Tax

Post by LadyGeek » Mon Dec 25, 2017 8:03 pm

HueyLD wrote:
Mon Dec 25, 2017 5:00 pm
The conference agreement follows the House bill and generally retains present-law maximum rates on net capital gains and qualified dividends, including estates and trusts.

However, estates/trusts have very low ceiling for maximum cap gain rate and 3.8% ACA surtax and those wil not change in 2018.
Thanks. According to H. R. 1 (Enrolled-Bill)*

--> SEC. 11001. MODIFICATION OF RATES.
----> (5) APPLICATION OF CURRENT INCOME TAX BRACKETS TO CAPITAL GAINS BRACKETS.—

The ceilings for the different capital gains rates do change. I don't understand how this applies to what you said. Can you please explain?

* XML version with hyperlinks to US Code, allow time for your browser to load the page.
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Re: Tax Reform - Revised Kiddie Tax

Post by HueyLD » Mon Dec 25, 2017 9:46 pm

In the conference report (the plain language section PDF file pages 534-535):

It says that for estates/trusts, the 15% cap gain/QDI rate starts at taxable income of 2,600 and 20% cap gain/QDI rate starts at taxable income of 12,700. In other words, only the first 2,599 is taxed at 0% and the tax can be 20% + 3.8% on income of merely over 12,700.

For comparison, the comparable amounts for MFJ will be $77,200 for the 15% and 479,000 for the 20% + 3.8% cap gain rates. That's a very very big difference.

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Re: Tax Reform - Revised Kiddie Tax

Post by TIAX » Mon Dec 25, 2017 11:18 pm

HueyLD wrote:
Mon Dec 25, 2017 9:46 pm
In the conference report (the plain language section PDF file pages 534-535):

It says that for estates/trusts, the 15% cap gain/QDI rate starts at taxable income of 2,600 and 20% cap gain/QDI rate starts at taxable income of 12,700. In other words, only the first 2,599 is taxed at 0% and the tax can be 20% + 3.8% on income of merely over 12,700.

For comparison, the comparable amounts for MFJ will be $77,200 for the 15% and 479,000 for the 20% + 3.8% cap gain rates. That's a very very big difference.
I see, so there is an LTCG rate for Trusts as well. So if one was, for example, in the 20% LTCG bracket, would it would make sense to shift some of his LTCG/qualified dividends to a child up to $12,700 above the $2,100 threshold? Would it ever make sense to shift 15% LTCG income to kiddie 15% LTCG income (to avoid a cliff)?

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Re: Tax Reform - Revised Kiddie Tax

Post by Tanelorn » Mon Dec 25, 2017 11:35 pm

Seems the new rules make it less worthwhile to consider moving money into your child's name. Not only are their tax rates potentially worse than their parents on unearned income under the trust tax schedule, estate tax issues are receding as a concern with the higher limits.

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Re: Tax Reform - Revised Kiddie Tax

Post by LadyGeek » Tue Dec 26, 2017 2:14 pm

HueyLD wrote:
Mon Dec 25, 2017 9:46 pm
In the conference report (the plain language section PDF file pages 534-535):

It says that for estates/trusts, the 15% cap gain/QDI rate starts at taxable income of 2,600 and 20% cap gain/QDI rate starts at taxable income of 12,700. In other words, only the first 2,599 is taxed at 0% and the tax can be 20% + 3.8% on income of merely over 12,700.

For comparison, the comparable amounts for MFJ will be $77,200 for the 15% and 479,000 for the 20% + 3.8% cap gain rates. That's a very very big difference.
Thanks, the example helped and I understand what you mean now. I found the conference report:

Text - H.R.1 - 115th Congress (2017-2018) --> Committee Reports --> H. Rept. 115-466 (Conference Report)

Did I miss something? Pages 534-535 do not exist in this PDF file. Page 208 (Adobe) / 194 (printed) starts the discussion on capital gains rates. The rationale on why they made the change is very helpful and explained on page 211 (Adobe) / 197 (printed).

I have added this thread to the wiki. See: Kiddie tax
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Re: Tax Reform - Revised Kiddie Tax

Post by SteelyEyed » Tue Dec 26, 2017 4:54 pm

HueyLD wrote:
Mon Dec 25, 2017 9:46 pm
It says that for estates/trusts, the 15% cap gain/QDI rate starts at taxable income of 2,600 and 20% cap gain/QDI rate starts at taxable income of 12,700. In other words, only the first 2,599 is taxed at 0% and the tax can be 20% + 3.8% on income of merely over 12,700.
By my reading, the minor's standard deduction was tied to his/her having an exemption claimed by another taxpayer. Since exemptions are gone, then the standard deduction is gone as well. If so, then the $1,050 deduction is gone. Is that right? Even without it, the $2,550 of LTCG income taxed at 0% is better than the $2,100 ($1,050 x2) under current law. Hopefully, I'm wrong and the deduction still exists, making it $1,050 + $2,550 or even $1,050 + $1,050 +$2,550 at 0%.

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Re: Tax Reform - Revised Kiddie Tax

Post by RetiredAL » Tue Dec 26, 2017 5:05 pm

With respect to UTGA/UGMA accounts.......

It seems to me, most UGMA accounts would NOT have large enough yearly gains to exceed the 15% rate IF CapGain Harvesting was done yearly. After all, $100,000 account balance would need a 13%+ return harvested year to exceed the 15% tax rate.

When less gain or loss years are sprinkled in to the harvesting actions, one should easily be able to accumulate a huge balance that has a corresponding huge basis cost, thus withdrawals will have become relatively tax friendly.

I see the these tax law changes as somewhat advantageous if managed this way, for most parents.

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Re: Tax Reform - Revised Kiddie Tax

Post by HueyLD » Tue Dec 26, 2017 5:55 pm

SteelyEyed wrote:
Tue Dec 26, 2017 4:54 pm
HueyLD wrote:
Mon Dec 25, 2017 9:46 pm
It says that for estates/trusts, the 15% cap gain/QDI rate starts at taxable income of 2,600 and 20% cap gain/QDI rate starts at taxable income of 12,700. In other words, only the first 2,599 is taxed at 0% and the tax can be 20% + 3.8% on income of merely over 12,700.
By my reading, the minor's standard deduction was tied to his/her having an exemption claimed by another taxpayer. Since exemptions are gone, then the standard deduction is gone as well. If so, then the $1,050 deduction is gone. Is that right? Even without it, the $2,550 of LTCG income taxed at 0% is better than the $2,100 ($1,050 x2) under current law. Hopefully, I'm wrong and the deduction still exists, making it $1,050 + $2,550 or even $1,050 + $1,050 +$2,550 at 0%.
The standard deduction for someone who can be claimed as a dependent for 2018 is not changed by the TCJA. In other words, the standard deduction has nothing to do with the personal exemption which will go away in 2018 anyway.

The standard deduction claimed by a dependent in 2018 cannot exceed the greater of $1,050 or the sum of $350 plus the individual’s earned income up to the standard deduction for unmarried taxpayers.

Keep in mind that the tax brackets are based on “taxable”income and the standard deduction has been accounted for in arriving at the taxable income.

As with many tax situations, the best way to evaluate your situation is to do tax returns under various scenarios and pick the combination that is optimal from both financial and tax perspectives for your situation.

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Re: Tax Reform - Revised Kiddie Tax

Post by AustinAttorney » Wed Dec 27, 2017 3:03 pm

To me, what hasn't been answered definitively is whether under the new law, a minor with no earned income can have $4,650 annually in qualified dividends and long-term capital gain taxed at 0%. In other words, does the standard deduction of $1,050 still apply and after the standard deduction is the first $1,050 of income taxed at the child's rate (0% for dividends and LTCG), such that the trust & estates brackets apply after $2,100 in unearned income? Or does the standard deduction still apply, but then the trust & estates brackets kick in immediately after the standard deduction (in which case, one can achieve a 0% rate on unearned dividend and LTCG income up to $3,600)?

If indeed either of these are the case, it opens the door significantly further for periodic tax gain harvesting in UTMA/UGMA accounts.

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Re: Tax Reform - Revised Kiddie Tax

Post by HueyLD » Wed Dec 27, 2017 3:19 pm

Based on my reading, it is as follows:

3,650 minus 1,050 minus 2,600 = 0

3,650 - 1,050 = 2,600 taxable income and up to 2,600 of taxable income in QDI/net LTCG gets zero rate.

So, a dependent subject to kiddie tax with $3,650 in QDI and net LTCG will pay zero capital gain tax.

Again, it is more prudent to wait for the IRS to come up with new form 8615. Sometimes, the form design may result in unexpected consequence.

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Re: Tax Reform - Revised Kiddie Tax

Post by spade » Sun Dec 31, 2017 4:36 pm

Hello everyone,
LadyGeek wrote:
Mon Dec 25, 2017 4:57 pm
The wiki was recently revised for the 2018 tax changes. See: Kiddie tax

If anyone has a suggestion to clarify the content, or notices an error, please post here.
The section "Taxation of children with earned income" says:

Example 3: [...] In 2018, the tax is imposed at the rate on trusts, and trusts pay 10% tax on the first $2600 of income, so there is no tax on the LTCG. [...]

Shouldn't this passage read something like this:

Example 3: [...] In 2018, the tax is imposed at the rate on trusts, and trusts pay 0% tax on the first $2600 of non-earned income. Assuming that the standard deduction of $1,050 still applies, there is no tax on the LTCG. [...]

-- spade

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Re: Tax Reform - Revised Kiddie Tax

Post by LadyGeek » Mon Jan 01, 2018 2:46 pm

Welcome! Thanks for the correction, the wiki has been updated: Kiddie tax
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Re: Tax Reform - Revised Kiddie Tax

Post by avdheshc » Fri Jan 05, 2018 2:00 pm

LadyGeek wrote:
Mon Dec 25, 2017 4:57 pm
The wiki was recently revised for the 2018 tax changes. See: Kiddie tax

If anyone has a suggestion to clarify the content, or notices an error, please post here.
Typo in "Example 2: A child has $1,200 of earned income. Her standard deduction is $1,550. "
Correction: "Example 2: A child has $1,200 of earned income. Her standard deduction is $1,050. "

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Re: Tax Reform - Revised Kiddie Tax

Post by HueyLD » Fri Jan 05, 2018 2:46 pm

avdheshc wrote:
Fri Jan 05, 2018 2:00 pm
LadyGeek wrote:
Mon Dec 25, 2017 4:57 pm
The wiki was recently revised for the 2018 tax changes. See: Kiddie tax

If anyone has a suggestion to clarify the content, or notices an error, please post here.
Typo in "Example 2: A child has $1,200 of earned income. Her standard deduction is $1,550. "
Correction: "Example 2: A child has $1,200 of earned income. Her standard deduction is $1,050. "
Your correction is wrong.

For 2018, the standard deduction for a taxpayer who can be claimed as a dependent by another taxpayer cannot exceed the greater of (a) $1,050 or (b) $350 plus the dependent's earned income. $1,550 is greater than $1,050.

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Re: Tax Reform - Revised Kiddie Tax

Post by LadyGeek » Fri Jan 05, 2018 3:38 pm

Thanks, I clarified the example. See: Kiddie tax (Taxation of children with earned income)
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Re: Tax Reform - Revised Kiddie Tax

Post by avdheshc » Mon Jan 08, 2018 3:59 pm

LadyGeek wrote:
Fri Jan 05, 2018 3:38 pm
Thanks, I clarified the example. See: Kiddie tax (Taxation of children with earned income)
Apologies for earlier mistake. It seems that the edit introduced another typo, it should say 1200+350=1550. Right now it says "1050+350=1550"

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Re: Tax Reform - Revised Kiddie Tax

Post by LadyGeek » Mon Jan 08, 2018 4:15 pm

Sorry about that, it's fixed. See: Kiddie tax
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Re: Tax Reform - Revised Kiddie Tax

Post by AustinAttorney » Thu Jan 11, 2018 10:47 am

HueyLD and others -

For what it's worth, I stumbled upon this: https://braggfinancial.com/index.php?di ... eTaxUpdate

It states that "In 2018, unearned income under the $2,100 Kiddie Tax threshold will continue to be taxed at the child's rate. However, as a result of the TCJA, unearned income exceeding this threshold will no longer be taxed at parents' marginal rates but at the much more compressed tax rates of trusts and estates."

Accordingly, "This means that a child can receive up to $4,650 of unearned income before exceeding the 10% marginal rate ($2,100 Kiddie Tax threshold + $2,550 in the lowest trust tax bracket)." Given that LTCG rate is 0% in the 10% bracket, it follows that $4,650 in unearned LTCG income would be taxed at 0%.

Regards,
AustinAttorney
HueyLD wrote:
Wed Dec 27, 2017 3:19 pm
Based on my reading, it is as follows:

3,650 minus 1,050 minus 2,600 = 0

3,650 - 1,050 = 2,600 taxable income and up to 2,600 of taxable income in QDI/net LTCG gets zero rate.

So, a dependent subject to kiddie tax with $3,650 in QDI and net LTCG will pay zero capital gain tax.

Again, it is more prudent to wait for the IRS to come up with new form 8615. Sometimes, the form design may result in unexpected consequence.

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Re: Tax Reform - Revised Kiddie Tax

Post by Wagnerjb » Thu Jan 11, 2018 12:03 pm

AustinAttorney wrote:
Thu Jan 11, 2018 10:47 am

For what it's worth, I stumbled upon this: https://braggfinancial.com/index.php?di ... eTaxUpdate

It states that "In 2018, unearned income under the $2,100 Kiddie Tax threshold will continue to be taxed at the child's rate. However, as a result of the TCJA, unearned income exceeding this threshold will no longer be taxed at parents' marginal rates but at the much more compressed tax rates of trusts and estates."

Accordingly, "This means that a child can receive up to $4,650 of unearned income before exceeding the 10% marginal rate ($2,100 Kiddie Tax threshold + $2,550 in the lowest trust tax bracket)." Given that LTCG rate is 0% in the 10% bracket, it follows that $4,650 in unearned LTCG income would be taxed at 0%.

Regards,
AustinAttorney
I prepare the tax returns for a brother's trust, and I also noticed that a trust is taxed at 0% on any LTGC or qualified dividends if the amount is less than $2550. I am not a tax lawyer, so I cannot confirm whether the $2,100 Kiddie Tax threshold is untouched by the new tax law, but if it is untouched then it appears that some folks will be better off in 2018 under the Kiddie Tax....especially those where the child's income is modest and is composed of qualified dividends and LT capital gains.

Best wishes.
Andy

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Re: Tax Reform - Revised Kiddie Tax

Post by HueyLD » Thu Jan 11, 2018 1:44 pm

I continue to believe that it is best to wait for the IRS instructions and guidelines. And we all know that the IRS is severely understaffed and it will take at least six months for them to be published.

So, let's take a shot at this again. But it is preliminary based on my reading of the final bill dated 12/22/2017.

PRELIMINARY is the key word!

I will use Form 8615 as the template for this discussion.

(Assumptions in parentheses)

Line 1: 4,700 (100% QDI/LTCG)
Line 2: 2,100 (No change)
Line 3: 2,600
Line 4: 3,650 (=4700-1050; 1050 standard deduction based on IRP 2017-58)
Line 5: 2,600

Line 13: -0- The line 5 amount is taxed at the trust rate. Since 100% of this amount is QDI/LTCG, the tax rate is zero. See the final bill Sec. 11001(a)(j)(5)(B)(i)(IV).

Line 14: 1050
Line 15: -0- tax is zero for 100% QDI/LTCG
Line 17: -0-
Line 18: -0- Total tax liability = 0

So the amount to shoot for is $4,700 in QDI/LTCG only for a rich kiddie.

wxl31
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Re: Tax Reform - Revised Kiddie Tax

Post by wxl31 » Fri Jan 12, 2018 12:46 pm

Came across this jaw-dropper from the Nolo website. Reference: https://www.nolo.com/legal-encyclopedia ... 30003.html

"Impact of Increased Standard Deduction
All taxpayers, including children, are entitled to take a standard deduction on their taxes. Any unearned income below the standard deduction amount is not taxed. Indeed, if a child’s total income is below the standard deduction amount, no tax return need be filed. For 2017, the standard deduction for a dependent child could not exceed the greater of (1) $1,050, or (2) the child’s earned income plus $350. For a child with only unearned income, therefore, the standard deduction was only $1,050. The TCJA increases the standard deduction for all single taxpayers, including dependent children, to $12,000 effective 2018. Thus, children can earn a total of $12,000 in income, whether earned or unearned, without paying any tax."

I have not seen this reported elsewhere. If not for the fact that 1. it came from the normally reputable Nolo website and 2. they explicitly state the TCJA increases the standard deduction for all taxpayers including dependent children, I would disregard it. Has anybody else heard of this?

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HueyLD
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Re: Tax Reform - Revised Kiddie Tax

Post by HueyLD » Fri Jan 12, 2018 1:27 pm

Nothing has changed except that "unearned" income over $2100 will be taxed at trust rates.

Read your own quote again. It is the greater of ....

So, a kiddie without "earned" income can have a maximum standard deduction of $1050. But a kiddie with "earned" income can have a maximum standard deduction of the amount of earned income plus $350, or $12000 whichever is less. Since they raised the standard deduction to $12k for single taxpayers, a hard working kid with a good paying job can shelter up to $12k of earnings from jobs or self employment.

And in the meantime, the rich and unemployed kiddie with a lot of trust fund Is only allowed up to $1050 in standard deduction.

This rule hasn't changed, but the standard deduction for hard working kiddie has.

Wagnerjb
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Location: Houston, Texas

Re: Tax Reform - Revised Kiddie Tax

Post by Wagnerjb » Fri Jan 12, 2018 3:45 pm

wxl31 wrote:
Fri Jan 12, 2018 12:46 pm
Came across this jaw-dropper from the Nolo website. Reference: https://www.nolo.com/legal-encyclopedia ... 30003.html

"Impact of Increased Standard Deduction
All taxpayers, including children, are entitled to take a standard deduction on their taxes. Any unearned income below the standard deduction amount is not taxed. Indeed, if a child’s total income is below the standard deduction amount, no tax return need be filed. For 2017, the standard deduction for a dependent child could not exceed the greater of (1) $1,050, or (2) the child’s earned income plus $350. For a child with only unearned income, therefore, the standard deduction was only $1,050. The TCJA increases the standard deduction for all single taxpayers, including dependent children, to $12,000 effective 2018. Thus, children can earn a total of $12,000 in income, whether earned or unearned, without paying any tax."

I have not seen this reported elsewhere. If not for the fact that 1. it came from the normally reputable Nolo website and 2. they explicitly state the TCJA increases the standard deduction for all taxpayers including dependent children, I would disregard it. Has anybody else heard of this?
I don't believe the underlined portion of the quote is correct. Neither does HueyLD. Be careful before adopting a strategy to take advantage of this amount, as there is some lack of clarity right now around the new tax laws in this area.

Best wishes.
Andy

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HueyLD
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Re: Tax Reform - Revised Kiddie Tax

Post by HueyLD » Fri Jan 12, 2018 6:15 pm

Andy,

What is your understanding of the changes?

There is standard deduction for dependents, and there are standard deductions for kiddie tax. There are two separate issues even though a dependent can also be subject to the kiddie tax.

Yes, it is complicated.

Wagnerjb
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Location: Houston, Texas

Re: Tax Reform - Revised Kiddie Tax

Post by Wagnerjb » Fri Jan 12, 2018 8:16 pm

HueyLD wrote:
Fri Jan 12, 2018 6:15 pm
Andy,

What is your understanding of the changes?

There is standard deduction for dependents, and there are standard deductions for kiddie tax. There are two separate issues even though a dependent can also be subject to the kiddie tax.

Yes, it is complicated.
Huey: I am not qualified to read the tax regulations, nor the recent Congressional act itself. However, I have dealt with the Kiddie Tax personally in the past and I understand how it currently works....with the $2,100 of tax free income available to a dependent under Kiddie Tax. I have read multiple articles on the new tax changes, and I have seen apparently conflicting reports about the second $1,050 that is currently available over and above the basic $1,050 standard deduction. Is the second $1,050 eliminated when moving to the Trust tax rates? That part isn't clear to me. As you said in one of your notes, we may just have to wait and see how the tax forms are developed.

What seems pretty clear is that the dependent who is subject to Kiddie Tax (meaning they have unearned income over a certain amount) does not get a standard deduction of $12,000.

Best wishes.
Andy

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