Feb 052011
 

CUP OF JOE – FREE TOP OFF!!!

A rainy Saturday during tax season…well that means a Top Off to your Cup of Joe Newsletter!  As it is filing season, many questions arise that we only think of this one time of year.  One specific issue is when do our kids need to file and when may they want to file?  We have summarized some general rules but their may be other considerations (education credits etc) that make your situation unique. 

Do your kids earn interest and dividends from investments you’ve made for them? Do they have a job? Find out when you need to files taxes for kids.

2010 Income Requirements:

For the 2010 tax year, children claimed as a dependent on your return must file their own taxes if they meet any of the following:

  • Earned income is greater than $5,700.
  • Unearned income (like dividends and interest) is greater than $950.
  • Self employment net earnings are greater than $400.
  • Earned and unearned total income is greater than the larger of $950 or earned income plus $300.

How to File:

There are two methods to filing kid’s tax returns:

  • Attach to parent’s return. If the child is under age 19 (or a full time student under 24), and the child’s income is less than $9,500 and only from interest and dividends, it can be attached to the parent’s return using Form 8814. Although, this may result in higher taxes on qualified dividends or capital gains.
  • Complete individual tax return for child. If the requirements are not met to attach it to the parent’s return, or you want to ensure lower taxes, the child should file his own return.

Kiddie Tax:

It’s important to know that if interest plus dividends plus other investment income total more than $1,900, part of the child’s income will be taxed at the parent’s tax rate instead of the child’s tax rate.
Other Filing Requirements:

In addition to the income requirements, there are other circumstances when children must file a tax return. One example is tax on Social Security and Medicare uncollected by an employer.
Optional Filing:

Even if a child is not required to file a tax return, he can choose to file one. He may want to do this if he had withholding from a part-time job and wants to get a refund.

A rainy Saturday during tax season…well that means a Top Off to your Cup of Joe Newsletter!  As it is filing season, many questions arise that we only think of this one time of year.  One specific issue is when do our kids need to file and when may they want to file?  We have summarized some general rules but their may be other considerations (education credits etc) that make your situation unique. 

Do your kids earn interest and dividends from investments you’ve made for them? Do they have a job? Find out when you need to files taxes for kids.

2010 Income Requirements:

For the 2010 tax year, children claimed as a dependent on your return must file their own taxes if they meet any of the following:

  • Earned income is greater than $5,700.
  • Unearned income (like dividends and interest) is greater than $950.
  • Self employment net earnings are greater than $400.
  • Earned and unearned total income is greater than the larger of $950 or earned income plus $300.

How to File:

There are two methods to filing kid’s tax returns:

  • Attach to parent’s return. If the child is under age 19 (or a full time student under 24), and the child’s income is less than $9,500 and only from interest and dividends, it can be attached to the parent’s return using Form 8814. Although, this may result in higher taxes on qualified dividends or capital gains.
  • Complete individual tax return for child. If the requirements are not met to attach it to the parent’s return, or you want to ensure lower taxes, the child should file his own return.

Kiddie Tax:

It’s important to know that if interest plus dividends plus other investment income total more than $1,900, part of the child’s income will be taxed at the parent’s tax rate instead of the child’s tax rate.
Other Filing Requirements:

In addition to the income requirements, there are other circumstances when children must file a tax return. One example is tax on Social Security and Medicare uncollected by an employer.
Optional Filing:

Even if a child is not required to file a tax return, he can choose to file one. He may want to do this if he had withholding from a part-time job and wants to get a refund.