Why Shouldn’t You Add Your Kid’s Income Onto Your Tax Return?

Want to get more out of why shouldn add kid without the guesswork? Below we walk through the essentials in plain language, with practical steps you can use right away.

Key Takeaways

• Bonnie had been adding her son’s interest income to her tax return for numerous years.  That was a $1,000 mistake.
• She was overpaying Uncle Sam and at no point realized it.
• Worth noting: tax Breaks For Children By simply adding Luke’s interest to her own, Bonnie was missing out on some tax breaks allowed to children.
• The first $950 (in 2009) of investment income belonging to a child is not taxed at all.

Is Why Shouldn Add Kid Worth It?

SharePinTweetShare0 SharesThis is an article by Carol Topp, CPA.  Carol is the mother of two teenage daughters and she lives in Cincinnati, Ohio.  She discusses teenagers and taxes at http://TeensandTaxes.com. It is straightforward to understand why Bonnie reported her son’s interest income as her own.  The statements from her son’s UTMA (Uniform Gift to Minors Act) account at the local bank had both her name and his name on the account.   Her name was even listed first as “Bonnie Smith, Custodian for Luke Smith”.

Investment income is interest, dividends and capital gain distributions from a mutual fund.  The next $950 of investment income is taxed at the child’s rate, which is typically reduce than the parent’s rate. Any investment income over $1,900 is taxed at the parent’s rate and dubbed the kiddie tax.   The kiddie tax is explained at my website TeensandTaxes.com.

Where the Real Savings Hide

More importantly, avoid Bonnie’s mistake of adding your teenager’s investment income to your own on your tax return. A teenagers’ investment income can be included on a parent’s tax return, but you must apply a special form,  Form 8814 Parents’ Election to Report Child’s Interest and Dividends.

The IRS warns that applying Form 8814 could result in greater income tax. For my tax clients, I consistently file a separate return for the teenager or child.  I avoid applying Form 8814.

A Closer Look at Why Shouldn Add Kid

Remember that teen W-2  Income Must Be Reported Separately If your teenager has earned income from a job, he must file his own tax return. You cannot add your child’s earned income, reported on his W-2, to your wages.

I fixed Bonnie’s mistakes by filing amended tax returns for the previous three years. She received $1,026 in refunds, while her son Luke owed $114 for a difference of $912.

What to Know About Why Shouldn Add Kid

As a rule, even after paying my fees, it was worthwhile to fix her mistakes.  It could be worthwhile in your situation as well. Please consult a tax professional for advice on your specific situation.

Have you made any of these mistakes when filing a child’s taxes? Tell us about it in the comments!

How Why Shouldn Add Kid Really Works

In short, 3 Reasons Why A Large Income Tax Refund Is A Horrible ThingOver the next few months we will be taking a long and laborious journey through the perilous tax season. What those changes exactly will… SharePinTweetShare0 Shares.

Frequently Asked Questions

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Compare prices across a few retailers, look for active coupon codes, and time bigger buys around sales events. It is straightforward to understand why Bonnie reported her son’s interest income as her own.  The statements from her son’s UTMA (Uniform Gift to Minors Act) account at the local bank had both her name and his name on t....

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Usually yes. Investment income is interest, dividends and capital gain distributions from a mutual fund.  The next $950 of investment income is taxed at the child’s rate, which is typically reduce than the parent’s rate.

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Read the terms, confirm any code still works, and factor in shipping or returns. Any investment income over $1,900 is taxed at the parent’s rate and dubbed the kiddie tax.   The kiddie tax is explained at my website TeensandTaxes.com.

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Final Thoughts

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Originally published at biblemoneymatters.com.