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 child was under age 19 (or under age 24 if a full time student) at the end of the tax year.
- The child’s only income was from interest and dividends, including capital gain distributions and Alaska Permanent Fund dividends.
- The child’s gross income for 2016 was less than $10,500.
- The child is required to file a 2016 return.
- The child does not file a joint return for 2016.
- There were no estimated tax payments for the child for 2016 (including any overpayment of tax from their 2015 return applied to 2016 estimated tax).
- There was no federal income tax withheld from the child’s income.
The Parents must also meet the following conditions:
- You are filing a joint return.
- You and the child’s other parent were married to each other, but filing separate returns for 2016 and you had the higher taxable income.
- If you are unmarried, the child must have lived with you for most of the year.
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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