Ever want to NOT claim a child dependent ?

[Delawaredave5]

Child reduces your AGI by $3,900, or saving you about $1,300 in taxes (assuming 35% bracket).

If you claim child, and child has large investment gains, then gains above a certain point are charged at parent's tax rate, right ?

Is there ever an instance where you'd want to not claim a child - and then have all the kid's investment income taxed at kid's own personal rate ?

I'm helping out a friend - don't know all the exact details.

If there's a 20% tax rate difference between kid and parent, then if if the kid had more than $6,500 in gains (5x$1,300), then it would be a "wash".

Maybe only in extreme unusual examples.

Appreciate any comments. Thanks !

 

[mpeirce]

In my experience you have to go to the trouble of figuring it both ways to really see which is better.

In our case, we've saved money by having DS not be a dependent the last two years. He has some stock in a custodial account that is paying his college expenses. It's almost all capital gain at this point, so in his specific case, we saved something like a grand this year over claiming him as a dependent. And yes,this is a pretty extreme, though real example.

(I stashed $2000 in a custodial account for him back when aapl was at $9.25 a share, second best investment I ever made!)

 

[LOL!]

My impression is that if the dependent can be claimed, but is not claimed, then it doesn't change a thing. So one has to make sure they cannot be claimed (fails some test for claiming).

 

[Delawaredave5]

My impression is that if the dependent can be claimed, but is not claimed, then it doesn't change a thing. So one has to make sure they cannot be claimed (fails some test for claiming).

I think you are correct (at least per Turbotax) - there is this Form 8615 "Tax for Certain Children Who Have Unearned Income"

If you check "Someone else can claim me", then this Form 8615 is triggered. This is triggered even if you say "no one will claim me".

Thanks for all the responses.

 

[Delawaredave5]

I guess a kid living away for college all year does not "fail" the residency test ? Looks like it is called a temporary absence.

Publication 501 (2013), Exemptions, Standard Deduction, and Filing Information
Temporary absences. Your child is considered to have lived with you during periods of time when one of you, or both, are temporarily absent due to special circumstances such as:
Illness,
Education,
Business,
Vacation, or
Military service.

 

[Alan]

I guess a kid living away for college all year does not "fail" the residency test ? Looks like it is called a temporary absence.

Publication 501 (2013), Exemptions, Standard Deduction, and Filing Information
Temporary absences. Your child is considered to have lived with you during periods of time when one of you, or both, are temporarily absent due to special circumstances such as:
Illness,
Education,
Business,
Vacation, or
Military service.

We claimed each of our kids as dependants while they were living away full time at college.