We all know about Form 8615 “Tax for Certain Children Who Have Unearned Income”. But don’t forget there is another option, Form 8814 “Parent’s Election to Report Child’s Interest and Dividends”. If a normally high-income taxpayer has a year when their income is lower than usual, it may be more advantageous to use Form 8814 instead of the children filing their own tax returns and using Form 8615. The requirements to do this are stiff, but it can be worth considering and not just going with what was done the year before.
To use Form 8814 the child must meet all of the following conditions:
The Parents must also meet the following conditions:
However, beware if the child received qualified dividends or capital gain distributions. You may pay more tax because the tax rate on the child’s income between $1,500 and $2,100 is 10% if you make this election. If you file a separate return for the child, the tax rate may be as low as 0% because of the preferential tax rates for qualified dividends and capital gain distributions.
If you have any questions, please contact your GBQ tax advisor.
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