[Anonymous]

Child, age 5, 3K in interest income only. Taxable Amount

I had 2,050 (950 deduction)

Wiley TB doubled the 950 deduction.

Is this an error in the TB or am I missing a rule?

Thanks,

[J]

Hooray for the kiddie tax!!!

Wiley's right… you take $950 plus (another $950 OR itemized deductions of the child related to investment income, whichever is greater)… I think you can also deduct early withdrawal penalties but I've never seen that asked.

Anyway, in your case it would be $1,100 as taxable income… $3,000 – ($950 + 950).

[SeattleAccountant]

For “Kiddie Tax”,

First $950 is a freebie (standard deduction);

Second $950 is taxable but under child's tax rate.

Anything over $950×2 = $1,900 is taxed at parental rate.

Be mindful of what exactly question asks.

Does it ask for the amount that would be taxable under parent's tax rate?

If yes, then $3K – $1,900 = $1,100 to be taxed at higher (parental rate) although it would be still reported on the kid's tax return.

But, if question asks for the amount taxed at child's rate, you should know that first $950 is not taxed at all, and next $950 is taxed but at lower percentage (child's rate) and only anything in excess of $950+950 = $1,900 is taxed at higher (parental) rate.

Becker Class of Jan - Aug 2013: FARB DONE!!!!
CPA license pending 🙂

[MCLKT]

If in the example the Kiddie had itemized deductions of $1,000 would the following be correct?

a) Not taxable remains = $950

b) taxed at lower kiddie rate = $1,000 (itemized deductions > $950)

c) taxed at parent rate = $1,050

d) total taxable income on child return = $2,050

A:[73]97 F:[74]85 R:86 B:[74]82
*NINJA 10 Pt. COMBO & Yaeger*

[SeattleAccountant]

If kid from example above has 3K interest income (Gross Unearned Income) and 1K investment expenses, I think it would unfold this way 🙂

1) First $1K is not taxable b/c it is allowable to take greater of either $950 deduction OR investment expense. Per rule: subtract the greater of the standard deduction or itemized expenses from the child's gross income to arrive at Net Unearned Income.

2) Second $950 = taxable at child's rate

3) 3K – 1K -950 = $1,050 taxed at parental rate (if that rate is higher than the child's)

Total taxable although at two different rates: 1,050 + 950 = $2,000

Becker Class of Jan - Aug 2013: FARB DONE!!!!
CPA license pending 🙂

[MCLKT]

Aw, ok… I see what you did there 🙂

Thanks study buddy!

A:[73]97 F:[74]85 R:86 B:[74]82
*NINJA 10 Pt. COMBO & Yaeger*

[Author]

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