Kiddie Tax: 2008 applies to Students to age 24!!!

[ERD50]

http://www.irs.gov/pub/irs-pdf/i8615.pdf
Minors Taxed at Parents' Rates: The Kiddie Tax

OK, this complexity in the tax law was added because people in higher tax brackets would "shift" investments to their children to take advantage of the child's lower rate. So they put the "Kiddie Tax" into effect, which makes you fill out form 8615 if the kids have investment income above a certain $ level. Most of that then gets taxed at the parent's marginal rate. If more than one kid fits that profile, you need to cross-reference the 8615s across each kid.... fun times.

In 2007, this applied to those Under age 18.

In 2008, this applies to those under age 18, plus (and HERE IS THE KICKER) those under age 24 IF THEY ARE STUDENTS!!!

What the heck is THAT about!

On one line, I'm getting tax CREDITS for money spent educating the kids, and on another line, a kid who is a student is getting taxed at a higher rate for being a student! That's right, two children in identical circumstances would pay different taxes solely because one of them is a student, and the student would be paying a higher rate because.... they are a student

I thought the govt was trying to encourage education through these social tax initiatives, and then they go ahead and penalize it. One hand does not know what the other is doing.

No kidding, I'm gonna start a tax revolt. I'm sick of this stupidity. But first, I've got to get my taxes done.

This is friggin' insane.

-ERD50

 

[FUEGO]

Just lie on your taxes. Come on, do it! All the cool Cabinet level nominees are doing it!

 

[ERD50]

Just lie on your taxes. Come on, do it! All the cool Cabinet level nominees are doing it!

Yeah, I know. I am tempted. I tend to think I'm a little above average in the honesty department, but even if we take away the "Lake Wobegon" effect, that means half the taxpayers are less honest than me.

If I'm thinking of cheating, what do you think *they* are thinking...

tax revolt, tax revolt, tax revolt, tax revolt, tax revolt, tax revolt, tax revolt,
tax revolt, tax revolt!!!!

-ERD50

 

[ERD50]

Just lie on your taxes. Come on, do it! All the cool Cabinet level nominees are doing it!

Well, I just ran the TaxAct alerts and guess what? No warning that my student with investment income from the college fund has to fill out form 8615.

If a computer can't figure out that a person is under 24 (you enter a birth date), and is a student (I entered "full time student" somewhere along the line), and has investment income (I reported it), well then how the heck is a mere mortal supposed to figure this out?

If I don't fill out the form, I won't consider it a "lie", it was just an "honest mistake", an "oversight", yeah, that's the ticket.

Hmmm, the program *did* ask me if I had any foreign income - no way I could miss that.

-ERD50

 

[dex]

S check defines children as 30 y/o.

Tax the rich! (as long as it isn't me)

 

[ziggy29]

I plead ignorance, not having any children, but does that always apply or only if you claim them as a dependent on your tax return?

 

[target2019]

Well, I just ran the TaxAct alerts and guess what? No warning that my student with investment income from the college fund has to fill out form 8615.

If a computer can't figure out that a person is under 24 (you enter a birth date), and is a student (I entered "full time student" somewhere along the line), and has investment income (I reported it), well then how the heck is a mere mortal supposed to figure this out?

You're finding out that there are different kinds of tax preparation software. For instance, tax-preparer brother uses Intuit ProSeries. It does put those facts together in the right way. Just added a large amount to daughter's form, and it opened appropriate worksheet and forms, and flagged the boxes with missing information.

 

[target2019]

I plead ignorance, not having any children, but does that always apply or only if you claim them as a dependent on your tax return?

That is another condition, yes.

 

[RE2Boys]

Yes, for the kiddie tax to apply, you must be claiming them as a dependent.Hint, do your and their taxes so that you do not claim them as a dependent, it may result in less taxes from a family basis. Of course, you don't get any education credit or tuition deduction if you do this. BTW, the kiddie tax will only apply to the dependent if they have over $1800 in unearned (investment) income.

RE2Boys

 

[TromboneAl]

ERD50, from your posts, I've always felt that you and I are very much alike. Like me, you probably find income tax returns frustrating because you see how stupidly they were designed. Overly complex, inconsistent, ambiguous, etc.

So, I recommend that you do what I do. Take a moment to...

1. Realize that there are many situations in which you can take advantage of the poor design of the tax code.

2. Realize that if everyone were as smart as you, you probably would not have been able to retire at age 50.

 

[ERD50]

So, I recommend that you do what I do. Take a moment to...

1. Realize that there are many situations in which you can take advantage of the poor design of the tax code.

2. Realize that if everyone were as smart as you, you probably would not have been able to retire at age 50.

I hear you T-al. Yes, I need to find a positive way to channel this frustration.

Last year I got just as worked up, and I talked about bringing this up to my Representatives. I've met my rep a couple times and she seems approachable - I just might have a shot at getting her attention.

Last year, my situation was complicated by having a large cap gain. Complaining about that probably wouldn't get a lot of sympathy. My situation this year is much more normal, pretty average income between DW part year job and my dividends. Two kids in college in 2008, another in high school. Two of those kids have college funds large enough to trigger the "Kiddie Tax" (they want us to save for college, right?).

That "Kiddie Tax" adds all sorts of complications to my taxes - the entries are really strange, not just "fill in this number in box 8", but they have you digging through forms, gathering info from a variety of places, making side notes, and then finally, after reading pages of instructions, determining which numbers you looked at should be plugged in. So it leaves with no real paper trail, other than your side notes if you want to re-evaluate what you did(*). The two kids tax forms need to cross reference numbers from the other, making it a circular affair (and causing me to sign in-and-out of the tax program numerous times).

As I mentioned in the other thread, there are so many consequences when you have complexity - it is crazy. Tax bills are different if your kids are two years apart in school rather than one year? Is that what was intended? I don't think so, but they didn't think it through - and they can't because it is too complex.

arghhhhh again. -ERD50

(*) edit/add note - It struck me as very strange that you just don't put these numbers into the form and follow the usual "multiply line 8 by 0.2 enter on line 9, subtract line 9 from line 7 enter on line 10, enter the larger of line 10 or line 6 on line 11", because they would need sooooo many lines, the form would be huge. So they bury it all in the instructions. What a mess.

 

[kaneohe]

.Hint, do your and their taxes so that you do not claim them as a dependent, it may result in less taxes from a family basis.
RE2Boys

perhaps, but if the kid files separately, he/she cannot claim a personal exemption if he/she can be claimed as a dependent by another person.....even if the other individual does not claim hi4012m/her as a dependent.

from pg c-1 of Pub 4012