Children with Investment Income

Special tax rules apply with certain children with investment income. Those rules may affect the tax rate and the way you report the income. If a child can’t file his or her own return, their parent or guardian is normally responsible for filing their tax return. Here are a few central facts that you should know about your child’s investment income.

  1. Investment income usually includes interest, dividends and capital gains. It also includes other unearned income, such as capital gains. It also includes other unearned income, such as from a trust.
  2. Special rules apply if your child’s total investment income is more than $2,000. Your tax rate may apply to part of that income instead of your child’s tax rate.
  3. If your child’s total interest and dividend income was less than $10,000 in 2013, you may be able to include the income on your tax return.
  4. Children whose investment income was $10,000 or more in 2013 must file their own tax return. Starting in 2013, a child filing a tax return might be subject the Net Investment Income Tax (NIIT) which is a 3.8% tax on the lesser of either net investment income or the excess of the child’s modified adjusted gross income that is over a threshold amount.

To figure whether your child must file a tax return or include your child’s income to your return, please call or send an e-mail to Westmusa.

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