Some parents try to instill a sense of responsibility in their children by making them do chores around the house, work part-time jobs, and even invest money in stocks. However, if at the end of the year they have earned income, they are required to pay taxes on it. But how does one report returns on investments, dividends and other distributions for children? That’s where IRS Form 8615 comes in. This form is required to report any income from interest or dividends over $1,900 for children under 18 with a few exceptions for full time students. The child has to be less than 18 years of age at the end of the tax year or under 24 and a full time student.
Parents should first make sure that their child fills out IRS Form 1040, 1040A, or 1040NR as the information on those forms, such as the adjusted gross income, will be necessary to fill out IRS Form 8615. Parents should also have their own returns handy as Part II of the form requires data such as the parent’s tax rate, filing status, and taxable income. Some parents may try to avoid filing IRS Form 8615 by including that child’s income with their own come tax time. As long as the total investment income is less than $9,500 for the tax year and the income the child received was only from interest and dividends, they will be able to do so. The risk of this, of course, is that the child’s additional income may raise the parent’s tax rate for that tax year. Filling out IRS Form 8615 may help to make the decision of which approach would be more beneficial to both child and parent.
If a child has received property as a gift and it produces income for that child, that income must be reported on IRS Form 8615. Special rules also exist for divorced parents or parents who do not file jointly, whereby the child may file under the tax rate of the custodial parent or the parent with the larger taxable income. For help with the nuances of these and other forms, contact a tax professional. These experts can bring understanding to a wide variety of tax related issues for rates that may be more affordable than expected.