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Posted by Mark Bole on March 4, 2008, 10:51 pm
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According to Pub 929, "you may pay up to $42.50 more tax" if you elect
to file the child's investment income in excess of the kiddie tax amount
on the parents' return. It goes on to explain why.
Assuming the child doesn't itemize, doesn't have private activity bond
tax-exempt interest, is not blind, does not have an
early-withdrawal-of-savings penalty, and so on for the unusual scenarios
-- is it ever worth more, tax-wise, than $42.50 to file the child's
return separately?
Suppose the taxpayer has more than one child subject to the kiddie tax
rules (which changed radically, age-wise, in the last two tax years).
Suppose the taxpayer is subject to AMT. Does the answer change? Was it
ever significantly different in the last few decades?
Side issues, such as some states not conforming to the recent federal
changes on age limits for kiddie tax, are also interesting topics to
comment on.
-Mark Bole
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Posted by Rich Carreiro on March 5, 2008, 10:52 am
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> According to Pub 929, "you may pay up to $42.50 more tax" if you elect
> to file the child's investment income in excess of the kiddie tax
> amount on the parents' return. It goes on to explain why.
Except that that publication is lying when it says that.
It's true that *directly* there's only $42.50 more tax,
but if you include the child's investment income on the
parents' return, that increases the parents' AGI, and
so will reduce allowable medical deductions, will reduce
allowable miscellaneous deductions, could increase taxable
SS benefits, could cause phaseouts of AGI-dependent credits, etc.
--
Rich Carreiro rlc-news@rlcarr.com
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Mark Bole on March 6, 2008, 6:12 pm
Please log in for more thread options Rich Carreiro wrote:
>
>> According to Pub 929, "you may pay up to $42.50 more tax" if you elect
>> to file the child's investment income in excess of the kiddie tax
>> amount on the parents' return. It goes on to explain why.
>
> Except that that publication is lying when it says that.
>
> It's true that *directly* there's only $42.50 more tax,
> but if you include the child's investment income on the
> parents' return, that increases the parents' AGI, and
> so will reduce allowable medical deductions, will reduce
> allowable miscellaneous deductions, could increase taxable
> SS benefits, could cause phaseouts of AGI-dependent credits, etc.
Somehow I recollect that in years past (last decade) the difference
might have been more dramatic -- does anyone know if the calculations on
the form 8814 were revised at some point?
With one specific return I worked on, parents (AMT and various
limitations) and two children, I ran three scenarios and it turned out
that one child on his own and the other on the parents return actually
resulted in about $55 tax savings compared to both on the parent's
return. Both children on their own did *not* yield the expected $85
savings. I didn't work through every calculation, but I suspect it has
something to do with the kids' ratio of cap. gains/qual. dividend income
vs. ordinary interest/dividend income.
In California the federal AGI determines the state exemption credit
limitation, so it definitely yielded a better state result when the
child's income was not included in the federal return.
In the end the decision to make the parent's election on form 8615
should probably be based on who does the return -- a professional will
most likely charge more to do separate returns than the savings,
especially given what a PITA Form 8615 is. If self-preparing using tax
software, an extra hour on a Sunday afternoon is probably worth the savings.
-Mark Bole
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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Posted by Mark Bole on March 6, 2008, 6:25 pm
Please log in for more thread options Mark Bole wrote:
> Rich Carreiro wrote:
>>
>>> According to Pub 929, "you may pay up to $42.50 more tax" if you elect
>>> to file the child's investment income in excess of the kiddie tax
>>> amount on the parents' return. It goes on to explain why.
>>
>> Except that that publication is lying when it says that.
[...]
> In the end the decision to make the parent's election on form 8615
Oops... s/b Form 8814.
-Mark Bole
--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2007) - All rights reserved. >>
<< ------------------------------------------------------- >>
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