✏️+🎥Kiddie Tax Computation🟢

Responses

1. 

   James 11 January 2024

   Adam has the choice to file a separate return. Depending on the circumstances, it may be beneficial to file a separate return.

   Kiddie tax computation, lesson 5 topic 5
   approx 6:30

2. 

   Vinny D 5 October 2024

   Dear support,

   I have a question regarding the kiddie tax. What if there is a mix of different sources, such as short term capital gains, long term capital gains, and then general investment income. How is the allocation to the parents rates determined?

   For example,
   $1,200 interest income
   $1,300 short term capital gains
   $1,500 long term capital gains.

   Total $4,000. Of the amount in excess, how much gets apportioned to each category?

   Thank you!

   1. 

      Maroun, CPA 8 October 2024

      Hello Vinny,

      When a child has qualified dividends and/or net capital gains, the IRS uses a specific worksheet to allocate these amounts based on the child’s total unearned income. The worksheet calculates how much of the $2,600 Kiddie Tax threshold (2024) is applied to the qualified dividends and net capital gains.

      You have $1,500 in long-term capital gains, and the child’s total unearned income is $4,000.
      Long-term gain allocation deduction percentage = $1,500 / $4,000 = 37.5%

      The next step is to apply this percentage to the $2,600 Kiddie Tax threshold:
      Long-term capital gain allocation deduction = $2,600 x 37.5% = $975

      After allocating $975 to long-term capital gains, the remaining Kiddie Tax threshold is allocated to other unearned income (e.g., interest or short-term capital gains).
      Deduction for other unearned income = $2,600 – $975 = $1,625

      Conclusion:
      $525 ($1,500 – $975) will benefit from preferential tax rates.
      $875 ($1,200 + $1,300 – $1,625) will be taxed at the parent’s marginal tax rate.

      I hope this helps!