Tax Tips for Children
with Investment Income
By: Gary M. DellaPosta, CPA
Special tax rules may apply to some children who receive investment income. The rules may affect the amount of tax and how to report the income. Here are five important points to keep in mind if your child has investment income this year:
1. Investment Income. Investment income generally includes interest, dividends and capital gains. It also includes other unearned income, such as from a trust.
2. Parent's Tax Rate. If your child's total investment income is more than $2,100 then your tax rate may apply to part of that income instead of your child's tax rate. See the instructions for Form 8615, Tax for Certain Children Who Have Unearned Income.
3. Parent's Return. You may be able to include your child's investment income on your tax return if it was more than $1,050 but less than $10,500 for the year. If you make this choice, then your child will not have to file his or her own return. See Form 8814, Parents' Election to Report Child's Interest and Dividends, for more information.
4. Child's Return. If your child's investment income was $10,500 or more in 2016 then the child must file their own return. File Form 8615 with the child's federal tax return next April.
5. Net Investment Income Tax. Your child may be subject to the Net Investment Income Tax if they must file Form 8615. Use Form 8960, Net Investment Income Tax, to figure this tax.
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Gary DellaPosta is a CPA and founder of the firm. A graduate of Bryant University, he is a member of the American Institute of CPA's as well as the Massachusetts Society of CPA's. In addition to providing accounting, tax and advisory services to individuals and businesses, he also provides litigation support to attorneys and has been recognized as an expert in numerous Massachusetts' courts. Mr. DellaPosta serves on the Board of the Barnstable County Mutual Insurance Co., where he serves on the audit, investment and employee benefit committees. He is a Director at The Cooperative Bank of Cape Cod, where he serves on audit, governance, and personnel committees, and is a former director of Eastern Bank and Plymouth Savings Bank. He is also the former Treasurer of the Community Health Center of Cape Cod and is a former trustee of Heritage Museum & Gardens. Visit his website for more info