Tax on a Child's Investment Income

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Part of a child's investment income may be taxed at the parent's tax rate for 2004 if:
  1. The child was under age 14 at the end of 2004 (a child born on January 1, 1991, is considered to be age 14 at the end of 2004.),
  2. The child's investment income for 2004 was more than $1,600, and
  3. The child is required to file a tax return for 2004.

The child's tax is figured on Form 8615 (PDF), Tax for Children Under Age 14 With Investment Income of More Than $1,600. This form must be attached to the child's tax return.

You as a parent may be able to avoid having to file a tax return for your child by including the child's income on your tax return. You can choose to do this if all of the following conditions are met:
  1. Your child was under age 14 at the end of 2004,
  2. Your child is required to file a return for 2004, unless you make this election.
  3. Your child had income only from interest and dividends, including Alaska Permanent Fund dividends and capital gain distributions,
  4. The interest and dividend income was less than $8,000,
  5. No estimated tax payments were made for 2004, and no 2003 tax overpayment was applied to 2004, under your child's name and social security number, and
  6. No federal income tax was withheld from your child's income under backup withholding.
  7. You are the parent whose return must be used when applying the special tax rules for children under age 14.

If you do not file a joint return with the child's other parent, refer to Publication 929 to find out which parent's return may include the child's income.

To make this choice, attach Form 8814 (PDF), Parents' Election to Report Child's Interest and Dividends, to your Form 1040 (PDF).

For more information refer to Publication 929, Tax Rules for Children and Dependents. The publication is necessary for completing the Form 8615 if the child has capital gain distributions.


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