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Tax question...its that time of year
Old 02-25-2018, 09:44 AM   #1
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Tax question...its that time of year

Ill try to make this short.

1) Ive had a custodial account in my sons name since he was born. Hes now 18 and in college.
2) This is the first year he is filing a tax return as he has a part time job.
3) Earlier in 2017 , I made a large transfer putting his college money in more conservative investments. It caused a large capital gain but is taxed at his rate and filed on his returns, since the acct is in his name.

4) After completing his return including his income, his dividends and capital gains (which are in the $14000 range), his refund in Turbo Tax shows to be $300. But then it asks for his parents income from my 1040.
5) Once I enter my income his $300 refund turns into a $1800 tax bill.

Does he have to pay a larger amount of tax on the $14000ish unearned income just because his parents income is over a certain level?
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Old 02-25-2018, 10:03 AM   #2
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That's the Kiddie Tax kicking in.
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Old 02-25-2018, 10:06 AM   #3
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I would look at what forms got generated that include the tax, and read the instructions for the form to see why it applied, and if there's anything you can do about it. My guess is that it's because your son is a dependent, but I don't know the specifics.

You might get better responses with a more specific subject line, rather than a generic "this is a thread about taxes" title.
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Old 02-25-2018, 10:12 AM   #4
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Quote:
Originally Posted by utrecht View Post
Ill try to make this short.

1) Ive had a custodial account in my sons name since he was born. Hes now 18 and in college.
2) This is the first year he is filing a tax return as he has a part time job.
3) Earlier in 2017 , I made a large transfer putting his college money in more conservative investments. It caused a large capital gain but is taxed at his rate and filed on his returns, since the acct is in his name.

4) After completing his return including his income, his dividends and capital gains (which are in the $14000 range), his refund in Turbo Tax shows to be $300. But then it asks for his parents income from my 1040.
5) Once I enter my income his $300 refund turns into a $1800 tax bill.

Does he have to pay a larger amount of tax on the $14000ish unearned income just because his parents income is over a certain level?
Child who has more than $2100 in Divs/interest/CG's has them taxed at parents' tax rate - the Kiddie Tax described. Gave $14K to each of gchildren last year & they each took $2000-2100 in Cap Gains & divs. Will continue to do so each year.
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Old 02-25-2018, 10:21 AM   #5
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Is the 18 year old's part-time income enough that you could make a case that it is more than 1/2 of his support?

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The child was age 18 but less than 19 at the end of the tax year and the child's earned income didn't exceed one-half of the child's own support for the year (excluding scholarships if the child was a full-time student)
The downside would be that you would lose an exemption.
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Old 02-25-2018, 12:30 PM   #6
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For 2018, the rates that apply for the Kiddie Tax change. Instead of using the parent's marginal rates, you get to use the Trust & Estate rate table: 2018 Kiddie Tax: New Rules Means New Strategies

If only small part of child's income is subject to Kiddie Tax, the effective rate will be lower than in previous year. But the trust rates climb very quickly and steeply, so can go from 10% effective rate to 37% effective rate within a $10,000 dollar income change.
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Old 02-25-2018, 03:36 PM   #7
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Originally Posted by gerntz View Post
Gave $14K to each of gchildren last year & they each took $2000-2100 in Cap Gains & divs..
How are they controlling how much cap gains & dividends they get?

Just curious.
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