Child's tax return question / parents form 8615

[newbie003]

Hi. As mentioned in a separate post (I wanted to start a new post for this specific question), I have to do separate returns for my kids (ages 6 and 10), because they have capital gains (1099-B). They also have some dividends.

I use TaxAct for myself/wife, and bought H&R Block software for my kids (as it was much cheaper than using TaxAct).

My daughter has $366 in dividends and a small capital loss of $200.

My son has $700 in dividends and $2,040 of capital gains (~$1,600 of 1099 B gains and ~$400 of cap gains distributions on the 1099Div).

In any case, while doing my son's return, it says "Because this return is for a taxpayer under 24 with unearned income over $2,100, we'll help determine if child owes kiddie tax..."

It then talks about gathering info from other tax returns, including the parent's and other siblings. It comments that "if prepared using our software, those returns will include a form 8615 worksheet..." It then wants me to enter the Parent's taxable income (line 1a of parent's 8615 Worksheet), and other children's income (line 5 of form 8615 for all other children)

However, in TaxAct (again, where I do my return), the 8615 appears to be for a child's return, not a parent's. It even says "if you are completing the parent's return, do not enter info for form 8615 (tax on child's investment income), instead use 8814 (child'd interest and dividend income on your return). I'm of course not using the 8814 though, since they are filing their own returns. If I try to manually start an 8615, it wants me to confirm that I (the parent) is under 18.. So it clearly seems that the 8615 should only be done on a child's return.

I'm so confused...

Thanks for any assistance!

[Wagnerjb]

First of all, your daughter does not need to file a tax return. And her income is not to be included in the calculations of your son's Kiddie Tax. The forms ask for the income of all of the children that need to file a form 8615. Your daughter doesn't need to file at all, and thus no 8615 either.

You (the parent) won't have to file a form 8615, your child will have to. I don't know what the software is telling you, but that is the answer you need to generate.

Best wishes.

[newbie003]

Thank you. To confirm, I thought that if someone (i.e. my daughter) has a 1099 B, that they have to file their own return (regardless of the amount). I could be totally wrong here. If I don't need to file a return for her, would I instead report her dividends and cap gains on my return? And even if I don't have to file a separate return, and instead choose to include her info on my return, might it cause issue with the IRS, as the capital gains info on my return, wouldn't match what is reported to them by my brokerage (as it will now include my daughter's info)?

For the 8615 issue, HR Block (while doing my son's return), says to Enter the following:

"Parent's taxable income (line 1a of parent's 8615 Worksheet"

Is that just a complete typo on their part? Do they want line 43 of my 1040 ("Taxable Income")?

Thanks again!

[FoolishJumper]

Wagner's response is related to the filing threshold. A single person making under $10,400 does not legally have to file. Unfortunately because your son only made unearned income his filing threshold is $1,050, which he made more than so he legally had to file. Your daughter does not so therefore does not have to file. So there would be no additional form 8615 from your daughter UNLESS she files (even then her income is below $2,100 so no 8615 for her). If she does file then form 8615 asks for her taxable income which will be zero when you complete her return. If you will use taxact then complete your return and file, then your daughter's, and finally your son's. That way the software will have the answer to those questions already when you get to your son. If you review Form 8615 you'll see the question actually asks for line 43 of your 1040 (not 1A of your 8615 as you don't have one), so you are correct in your last question.

I assume your question is not one of not understanding kiddie tax, so I won't explain that. I have seen other similarly worded questions on TurboTax that were simply wrong. Always go and check the actual form from the IRS (8615 in this case) and it will confirm the answer to your question like this.

[Wagnerjb]

Thank you. To confirm, I thought that if someone (i.e. my daughter) has a 1099 B, that they have to file their own return (regardless of the amount). I could be totally wrong here. If I don't need to file a return for her, would I instead report her dividends and cap gains on my return? And even if I don't have to file a separate return, and instead choose to include her info on my return, might it cause issue with the IRS, as the capital gains info on my return, wouldn't match what is reported to them by my brokerage (as it will now include my daughter's info)?

Your daughter does not need to file at all, nor pay any income tax....if her unearned income is less than $1050.

There is no need to include her income on your tax return. That would be incorrect, and it would serve to incorrectly increase your taxes.

I don't use H&R Block software, so I cannot help you with how to answer their questions.

[MarkNYC]

Thank you. To confirm, I thought that if someone (i.e. my daughter) has a 1099 B, that they have to file their own return (regardless of the amount). I could be totally wrong here. If I don't need to file a return for her, would I instead report her dividends and cap gains on my return? And even if I don't have to file a separate return, and instead choose to include her info on my return, might it cause issue with the IRS, as the capital gains info on my return, wouldn't match what is reported to them by my brokerage (as it will now include my daughter's info)?

Your daughter does not need to file at all, nor pay any income tax....if her unearned income is less than $1050.

There is no need to include her income on your tax return. That would be incorrect, and it would serve to incorrectly increase your taxes.

The daughter does not need to file Form 8615, but she may need to file a tax return depending on the amount of the 1099B proceeds that generated the $200 capital loss. For example, if she sold a stock or fund for $15,000 for a $200 loss, the IRS will assume a $15,000 short term gain unless a tax return is filed to report the sales proceeds and the actual loss.

[newbie003]

My daughter has a total of about $7,000 in long term proceeds and $6,800 in cost, resulting in the $200 loss.

I believe the 1099 B indicates that all of this was reported to the IRS, so I don't think I need to file, correct?

[FoolishJumper]

My daughter has a total of about $7,000 in long term proceeds and $6,800 in cost, resulting in the $200 loss.

I believe the 1099 B indicates that all of this was reported to the IRS, so I don't think I need to file, correct?

You are correct. The basis was reported to the IRS and she earned below the filing threshold of $1,050, so she does not need to file a return and therefore no siblings earnings will end up on your son's Form 8615, only your parental income from your line 43 of your 1040.

[newbie003]

Thanks again for all the help!

[aristotelian]

Why are you trying to file 8615 (separate returns) as opposed to 8814 (adding kids income to your return)? You could do 8814 without having to trick TaxAct into thinking that you are a child etc. Also keep in mind that filing separately with the 8615 also means the child will have to file separate state and local returns.

The 8615 needs to know your income because either way the kiddie tax is determined by your marginal rate.

[MarkNYC]

Why are you trying to file 8615 (separate returns) as opposed to 8814 (adding kids income to your return)? You could do 8814 without having to trick TaxAct into thinking that you are a child etc. Also keep in mind that filing separately with the 8615 also means the child will have to file separate state and local returns.

A parent cannot file Form 8814 to include the child's income on the parents' return if the child has sales proceeds on Form 1099B, which both children have in this case.

[aristotelian]

A parent cannot file Form 8814 to include the child's income on the parents' return if the child has sales proceeds on Form 1099B, which both children have in this case.

Ah, good to know!

[MarkNYC]

My daughter has a total of about $7,000 in long term proceeds and $6,800 in cost, resulting in the $200 loss.

I believe the 1099 B indicates that all of this was reported to the IRS, so I don't think I need to file, correct?

You are correct. The basis was reported to the IRS and she earned below the filing threshold of $1,050, so she does not need to file a return ...

If the 1099B shows both gross sales proceeds and "basis reported to IRS", it is wishful thinking to believe the IRS will calculate the net gains or losses from all such reported sales, and add that net income or loss to the interest and dividend income in order to determine if the taxpayer meets the filing threshold.

[Wagnerjb]

The daughter does not need to file Form 8615, but she may need to file a tax return depending on the amount of the 1099B proceeds that generated the $200 capital loss. For example, if she sold a stock or fund for $15,000 for a $200 loss, the IRS will assume a $15,000 short term gain unless a tax return is filed to report the sales proceeds and the actual loss.

Mark: why would the IRS assume a short-term gain? Isn't that impossible? In order to have a short-term gain, the transaction would be covered (by definition) and thus the basis would be reported. So if there was indeed no basis reported, why wouldn't they assume the gain or loss was long term?

Best wishes.

[Wagnerjb]

If the 1099B shows both gross sales proceeds and "basis reported to IRS", it is wishful thinking to believe the IRS will calculate the net gains or losses from all such reported sales, and add that net income or loss to the interest and dividend income in order to determine if the taxpayer meets the filing threshold.

Mark: I see that the table 1-2 describing "Who Must File" on page 7 of IRS Publication 17 indicates that "unearned income" refers to dividends and interest and capital gain distributions, and it does not mention capital gains. So I can see your point that the IRS might not fill in the blanks as we would expect them to. However, I cannot find any other reference in Pub 17 indicating that children subject to Kiddie Tax should file anyway if they have capital gains. Is that just something you learn with experience?

Best wishes.

[Wagnerjb]

Thank you. To confirm, I thought that if someone (i.e. my daughter) has a 1099 B, that they have to file their own return (regardless of the amount). I could be totally wrong here. If I don't need to file a return for her, would I instead report her dividends and cap gains on my return? And even if I don't have to file a separate return, and instead choose to include her info on my return, might it cause issue with the IRS, as the capital gains info on my return, wouldn't match what is reported to them by my brokerage (as it will now include my daughter's info)?

I was just looking through the IRS Publication guidance on form 8814 and you can only file a form 8814 if your child's only income is dividends, interest and capital gain distributions (presumably from mutual funds). Thus, since your daughter has capital gains, you could not file form 8814 even if you daughter happened to have enough income to warrant a filing requirement.

Best wishes.

[MarkNYC]

If the 1099B shows both gross sales proceeds and "basis reported to IRS", it is wishful thinking to believe the IRS will calculate the net gains or losses from all such reported sales, and add that net income or loss to the interest and dividend income in order to determine if the taxpayer meets the filing threshold.

Mark: I see that the table 1-2 describing "Who Must File" on page 7 of IRS Publication 17 indicates that "unearned income" refers to dividends and interest and capital gain distributions, and it does not mention capital gains. So I can see your point that the IRS might not fill in the blanks as we would expect them to. However, I cannot find any other reference in Pub 17 indicating that children subject to Kiddie Tax should file anyway if they have capital gains. Is that just something you learn with experience?

Andy,

Assuming no earned income, a dependent child must file if "gross income" exceeds $1,050. For this purpose, the IRS defines gross income as "all income you receive in the form of money, goods, property and services that is not exempt from tax." So the IRS will consider gross proceeds on a 1099B to be "gross income". The actual gain from the sale would be net gain, or net income, or taxable income from the sale, but not gross income. For this purpose, I believe it is irrelevant whether or not basis is reported to the IRS.

[Wagnerjb]

If the 1099B shows both gross sales proceeds and "basis reported to IRS", it is wishful thinking to believe the IRS will calculate the net gains or losses from all such reported sales, and add that net income or loss to the interest and dividend income in order to determine if the taxpayer meets the filing threshold.

Mark: I see that the table 1-2 describing "Who Must File" on page 7 of IRS Publication 17 indicates that "unearned income" refers to dividends and interest and capital gain distributions, and it does not mention capital gains. So I can see your point that the IRS might not fill in the blanks as we would expect them to. However, I cannot find any other reference in Pub 17 indicating that children subject to Kiddie Tax should file anyway if they have capital gains. Is that just something you learn with experience?

Andy,

Assuming no earned income, a dependent child must file if "gross income" exceeds $1,050. For this purpose, the IRS defines gross income as "all income you receive in the form of money, goods, property and services that is not exempt from tax." So the IRS will consider gross proceeds on a 1099B to be "gross income". The actual gain from the sale would be net gain, or net income, or taxable income from the sale, but not gross income. For this purpose, I believe it is irrelevant whether or not basis is reported to the IRS.

Thanks Mark. Here is what Pub 17 says (underlining is mine):

Gross income means all income you received in the form of money, goods, property, and services that isn't exempt from tax, including any income from sources outside the United States or from the sale of your main home (even if you can exclude part or all of it). Don't include any social security benefits unless (a) you are married filing a separate return and you lived with your spouse at any time during 2017 or (b) one-half of your social security benefits plus your other gross income and any tax-exempt interest is more than $25,000 ($32,000 if married filing jointly). If (a) or (b) applies, see the instructions for Form 1040 or 1040A or Pub. 915 to figure the taxable part of social security benefits you must include in gross income. Gross income includes gains, but not losses, reported on Form 8949 or Schedule D. Gross income from a business means, for example, the amount on Schedule C, line 7, or Schedule F, line 9. But, in figuring gross income, don't reduce your income by any losses, including any loss on Schedule C, line 7, or Schedule F, line 9.

While I don't doubt that you are correct, I wish the definition of gross income were clearer. To me, when they refer to "gains", they are referring to the difference between the proceeds and the basis. To be clearer, they should have referred to "proceeds".

Best wishes.

[newbie003]

Hi all. Just following-up again, as I'm attempting to finish returns. I am filing a separate return for my son, and I'm at the point where the H&R Block software says:

Child with Unearned Income

Because this return is for a taxpayer under age 24, with unearned income over $2,100, we'll help you determine if the child owes the kiddie tax, and, if so, the amount of that tax.

I click through a few screens (entering my personal info, etc.) and then it says to enter the following:

Parent's taxable income (line 1a of parent's 8615 worksheet).

As discussed on this topic, there is no parent's 8615, correct? Perhaps if I had used H&R Block for my taxes it would have something, not sure.

In any case, if I just enter my 'taxable income' from line 43 of my 1040, it says my kid owes $12k in taxes... I assume therefore that I'm not entering the right #.

Any thoughts?

If not, I guess I'll just use TaxAct for my son's return and assume it'll do a better job (and can just pull in my info). it's just a lot pricier than H&R Block.

Thanks.

[Kevin M]

The HRBlock 8615 Worksheet is not the same as Form 8615. It's a worksheet that HRBlock completes in the parent's return to aid in determining the numbers to enter on the child's form 8615. So on the parent's return, there is no Form 8615 completed, but there is an 8615 Worksheet completed.

With the download/desktop version of HRBlock, you can prepare as many returns as you want (I do quite a few each year). This is one of the advantages of the download version. Perhaps TaxAct is the same? So there would be no incremental cost to do your child's return in addition to your return. A good reason to use the download version instead of the online version if doing multiple returns.

The numbers on the 8615 worksheet come from other forms and worksheets in your return. With the download version of HRBlock, you can open the blank 8615 worksheet, right-click on the lines of interest, and click "jump to related". A window then pops up telling you where the number comes from, and you can click the link to go to that form/worksheet to get the number. If you are using the online version, then this functionality may not exist (it did not in online Turbotax back when I used TT).

I just looked at my 8615 Worksheet (my daughter pays kiddie tax for 2017), and it's even simpler than I just described, since all the lines with numbers filled in tell you where the number comes from. For example, line 1a is "Parent's taxable income from form 1040, line 43 ...". You can open the 8615 Worksheet from HRBlock download version (while working on your child's return) by clicking "Show all forms", then scanning down the forms until you come to the worksheet. I'm not familiar with the online version, but I assume you can at least print the worksheet, or otherwise follow HRBlock's instructions on how to get to the worksheet.

Kevin

[newbie003]

I just looked at my 8615 Worksheet (my daughter pays kiddie tax for 2017), and it's even simpler than I just described, since all the lines with numbers filled in tell you where the number comes from. For example, line 1a is "Parent's taxable income from form 1040, line 43 ...". You can open the 8615 Worksheet from HRBlock download version (while working on your child's return) by clicking "Show all forms", then scanning down the forms until you come to the worksheet. I'm not familiar with the online version, but I assume you can at least print the worksheet, or otherwise follow HRBlock's instructions on how to get to the worksheet.

Kevin

Hi Kevin. Thanks so much for the detailed and helpful explanation! If I read it all correctly, it seems very simple; the figure that HR Block is referring to, where they want "line 1a of parent's 8615 worksheet", is simply line 43 of my 1040 (my taxable income). Is this correct?

That's actually what I had entered (my figure is somewhere between $75k and $100k), and that's when it told me that my son owed $12k in taxes... (I guess not realizing that I had already paid taxes...?). Any other thoughts as to what I might be doing wrong in this section?

[Kevin M]

Hi Kevin. Thanks so much for the detailed and helpful explanation! If I read it all correctly, it seems very simple; the figure that HR Block is referring to, where they want "line 1a of parent's 8615 worksheet", is simply line 43 of my 1040 (my taxable income). Is this correct?

On the HRB form 8615, I just see line 6 as requesting this directly, not referencing the 8615 worksheet, but yes, parent's taxable income goes on line 6 of child's Form 8615, and yes this is on Line 1a of the of the parent's 8615 worksheet. I was just looking at the forms, but in checking, I see that the interview requests it from line 1a of the parent's 8615 worksheet, but if you look at form 8615 itself, it says exactly what to enter.

That's actually what I had entered (my figure is somewhere between $75k and $100k), and that's when it told me that my son owed $12k in taxes... (I guess not realizing that I had already paid taxes...?). Any other thoughts as to what I might be doing wrong in this section?

Maybe you didn't finish form 8615? There are other numbers you need to enter that would come from the HRBlock 8615 worksheet if you had used it for your return. Here are mine:

Form 8615 line 6, parent's taxable income from 1040, line 43
Form 8615 line 9e, parent's net capital gain (Sched D line 15)
Form 8615 line 9f, parent's 28% gain (Sched D line 18); for me this is 0
Form 8615 line 9g, parent's unrecap sec 1250 gain (Sched D line 19); for you this may be 0, for me it was not
Form 8615 line 9h, parent's qualified dividends (1040 line 9b or Sched D tax worksheet line 2)
Form 8615 line 10, parent's tax (1040 line 44)

All the line 9 items are in the mini-worksheet for Form 8615 line 9.

Those are all the numbers that come from the 8615 worksheet. Now I'll look at daughter's form 8615.

Part I is all based on child's income, so HRBlock fills this in automatically based on entries elsewhere in child's return.

Part II

Line 6. You should have an entry on line 6, parent's taxable income, 1040 line 43.
Line 7. Relates 8615s for all other children, which I understand in your case should be 0.
Line 8. Sum of lines 5 (from Part I), 6 and 7.
Line 9. Fill out mini-worksheet for line 9 based on discussion above. Amount on line 9 is calculated based on line 8 and mini-worksheet entries for line 9.
Line 10. I got this from form 8615 worksheet, but you can get it directly from your 1040 line 44
Line 11. Subtract line 10 from line 9. This is the kiddie tax.

So if your line 11 is much larger than expected, it seems you must have not entered data in one of the previous lines, or entered it incorrectly.

Part III is Child's Tax calculations done by HRBlock software. For me lines 15 and 17, tax using child's filing status, are 0, so line 18 is equal to line 11, the kiddie tax.

If you are using download version of HRBlock, it's easy to look at the form directly and relate to notes above. If you are using online version with interview only, and can't easily open Form 8615 to view it directly, let me know if you still can't get it right based on above, and I'll relate the form numbers to the interview questions you may be having trouble with.

Kevin

[newbie003]

Thank you again. I was able to pull up my sons 8615 and manually enter, on line 10, my tax. I don't think I was getting that option during the interview part. This then reduced the nearly $13k it was saying my son owed, to just over $100 (i.e. $117 in kiddie tax).

I think I'm all set!

Thank you so much!

[Kevin M]

Thank you again. I was able to pull up my sons 8615 and manually enter, on line 10, my tax. I don't think I was getting that option during the interview part. This then reduced the nearly $13k it was saying my son owed, to just over $100 (i.e. $117 in kiddie tax).

I think I'm all set!

Thank you so much!

Glad you found the data entry error. This is entered on the interview page titled "Parent's tax information", and is the last entry on that page: Line 5a (parent's tax). This entry goes to line 10 on Form 8615. In the download/desktop version, you can see the numbers being entered in the form, at the bottom of the page, as you enter it in the interview box.

The line numbers on this page are for the Parent's 8615 worksheet.

Kevin