Reporting your Child’s Capital Gains and Dividends on Your Taxes: Form 8814

Little Timmy’s investments actually paid off? Congrats! Here’s how to put your kiddo’s income on your joint tax return.

Are you the custodial parent of a full-time student who’s also a child actor or an investment whiz? Is your child earning major passive income and unsure of your tax filing requirements?

Form 8814, Parent’s Election to Report Child’s Interest and Dividends, is a helpful tool that can assist you in making sure you are compliant with all applicable IRS regulations. Normally it’s the custodial parent who has to make tax payments based on their investment income, not the child. For federal income tax purposes, you may get a more favorable tax rate by bringing what your child earns into your joint tax return.

About Form 8814: Reporting a Child’s Interest and Dividends

Form 8814, Parent’s Election to Report Child’s Interest and Dividends, is an IRS form used by parents of full-time students under age 18 or younger with investment income to report that income on their own federal income tax returns. This form allows parents to include their child’s income in their own joint return and avoid the need for the student to file a separate return. It’s handy especially if the student is earning capital gain distributions from a taxable scholarship or the Alaska Permanent Fund.

Why file a separate tax return (and face any rules for children and taxes) when you could file a simple joint return as a family? Form 8814 is an option for parents to report interest and dividend income from private activity bonds and qualified dividends as well as any annuity income or capital gain distributions that their children earned. They must also calculate the taxable amount of unearned income in excess of $2,100, taking into account itemized deductions or standard deduction applied to the source of this income.

Generally, tax rates are more favorable when they’re on a joint tax return instead of a separate return. However, make sure you check with a tax professional to be sure you’re filing the correct tax return and listing all the necessary income for purposes of minimizing your tax liability.

It is important for parents to note that, according to the instructions for Form 8814, this form does not cover all types of income. For instance, any taxable income in excess of $2,100 received from sources other than investments and certain tax-exempt interest must be reported on a separate tax return for the child. Additionally, any earned income (such as wages) must also be reported on a separate return regardless of the amount earned.

What are the differences between Form 8814 and Form 8615?

Form 8814 and Form 8615 are both forms used by parents when filing a joint return with their child’s investment income. Form 8814 allows parents to report the child’s unearned income, such as dividends and capital gains, on their own tax returns. On the other hand, Form 8615 is used to calculate the tax owed on the child’s investment income and to report that tax on the child’s own tax return.

Itemizing Deductions on Form 8814

Itemizing deductions on Form 8814 can be a great way for parents of full-time students to reduce the overall tax burden on their returns. When filing taxes, parents must report any investment income exceeding $1,200 on Form 8814. By itemizing deductions on this form, parents can claim certain expenses they have paid throughout the year as a deduction against their taxable income. This can include tuition, student loan interest payments and other educational related expenses. Additionally, parents may also be able to deduct any state or local taxes they have paid during the year, as well as certain miscellaneous items such as job related expenses or charitable contributions.

IRS Requirements For Children With Investment Income Over $2,100

If your child has investment income over $2,100 in a year, good job! The Internal Revenue Service (IRS) requires that the parent or guardian of the child file Form 8814. In addition to filing Form 8814, parents also need to make estimated tax payments on behalf of their children if they owe any tax liability due to their unearned income. Their investment income essentially follows the same unearned income tax rules that you would follow as an individual filer. (For more capital gains info, we have an article about whether capital gains count as income.)

For example, if your child receives annuity income or other types of unearned income exceeding $2,200 then they may be required to file a separate tax return from yours.

Children with unearned income may be subject to special rules and regulations when it comes to taxation. The IRS requires that parents of a child under the age of 19 (or 24 for full-time students) who have investment income in excess of $2,200 must file a separate tax return using Form 8814. This form is used to report dividends, capital gain distributions, and other types of investment income. Furthermore, the child cannot claim any itemized deductions or the standard deduction on their separate tax return; instead, all items must be reported as income.

Additionally, any dividend income attributable to the child will be taxed at the parent’s marginal rate regardless of whether or not the parent claims it on their own returns. Finally, any taxable income earned by the child over $12,400 will be taxed at their own rate rather than at their parent’s tax rate.

Taxpayers can use Form 8814 to report dividends and other types of unearned income when filing a separate return. Whether to itemize or take the standard deduction is another important consideration for calculating tax liability from dividend income and long-term capital gains.

Sources

“IRS Form 8814 (Kiddie Taxes) – How to Complete” – Jason D. Knott

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