Kiddie Taxes -- How?

[Kork13]

This is the first year that I've had to deal with this issue, and I'm striking out finding comprehensible answers with Google & IRS.gov....

Background: 3 kids, ages 1, 5, 7 ... each have a UTMA with some dividends ($50-$150), and as Alaska residents, receive the Alaska PFD ($3284 each this year, 2-3x previous years) ... so the large PFD is the trigger.

Question 1: Is it better to report DKs' income on my taxes, or file for each of them individually? Our kids are over the reporting threshold & are required to report their 'unearned income'. I'm striking out on figuring out if it's less tax-costly for us to do so on our MFJ return (via Form 8814, for which they do meet the requirements), or if it's better to file for them individually.
They're in the grey area of being eligible to file via our MFJ return with Form 8814, vs. required to file separately (>$1150 but <$11,500)... so it's basically an option to me. I just have no idea how to approach the issue. Does anyone have experience/expertise with kiddie taxes? If it matters, our AGI is $150k (including DKs' ~$10k income), so we're solidly in the 22% bracket.

Question 2: How would you even go about filing taxes for your kids? I'm using H&R Block software for DW & I (free through the military), but I don't think I can use the same program to file separate returns for them. Unless is there an addendum form that I haven't found which would allow us to attach their "separate" returns to our MFJ return? Or is it literally just like filing taxes for myself, except I would run through some tax software as if I were my kids (on their behalf)? Would they be eligible for the IRS FreeFile program (filing for "themselves" with miniscule >$4k incomes), or ineligible due to my income within the household? The situation is unclear on the IRS FreeFile site.

 

[cathy63]

Can you do it both ways and then make your decision? Do your own return with their income note the total tax liability on line 24, then delete the kids income and look at the new line 24 value. Do one child's return and multiply by 3 then add that amount to your return without their income. Once you've done that, you'll know which way is more advantageous for the entire family.

To file for the kids individually, it's just like doing your own return. You just check the box on the 1040 that says "Someone can claim you as a dependent". I'm not sure how you do that in H&R Block software, but it's probably near the screen where you enter the name and SSN. If the free version of H&R Block won't let you e-file 4 separate returns, then you can print theirs out and mail in the paper.

 

[fh2000]

I had 2 UTMA accounts from 2 kids. They are now grown and on their own.

If I remember correctly, I started doing the exact steps what Cathy described some 15 years ago where they were in junior/high school. I always used TurboTax Deluxe. Each year, filing individual returns for each child always came up better. YMMV.

There are other benefits filing individual taxes for each child. When filing FAFSA they only look at child's asset. Also, if child is part of parent's HSA plan, they can contribute the full family amount to their own HSA account.