The Internal Revenue Service desires parents to be well aware of the taxation rules that impact their children’s investment income. The following 4 facts will help parents decide whether their child’s investment income will be taxed at the parents’ tax rate or the child’s rate.
- Investment Income Children with investment income may have part or all of this income taxed at their parents’ tax rate rather than at the child’s rate. Investment income includes interest, dividends, capital gains and other unearned income.
- Age Requirement The child’s tax must be figured using the parents’ rates if the child has investment income of more than $1,900 and meet one of three age requirements for 2009:
- The child was born after January 1, 1992.
- The child was born after January 1, 1991, and before January 2, 1992, and has earned income that does not exceed one-half of their own support for the year.
- The child was born after January 1, 1986, and before January 2, 1991, and a full-time student with earned income that does not exceed one-half of the child’s support for the year.
- Form 8615 To figure the child’s tax using the parents’ rate for the child’s return, fill out Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900, and attach it to the child’s federal income tax return.
- Form 8814 When certain conditions are met, a parent may be able to avoid having to file a tax return for the child by including the child’s income on the parent’s tax return. In this situation, the parent would file Form 8814, Parents’ Election To Report Child’s Interest and Dividends.
For more information about tax planning for your children’s investment income, give one of our tax specialist a call at 713-611-1040. Let us put our 30 years of tax planning and tax strategies to work for your TODAY!