Separate returns for dependent child?

IRS Pub 929 explains when a dependent child __must__ file a separate income tax return. The relevant rule is: the dependent child has unearned income only which is in excess of $1000 [1].

My question is: when __may__ a dependent child file a separate income tax return?

In particular, __may__ a dependent child file a separate income tax return if he/she has unearned income only which is __less_than__ $1000?

Or conversely, when __must__ a dependent child's income (i.e. unearned income only which is under $1000) be reported on the parent's income tax return?

Does Calif follow the same rules for state income tax returns?

The children are age 10 and 12 in 2013, and they have no disabilities (blindness or otherwise).

It seems to me that, generally and if allowed, it is better to report a dependent child's income separately (at least when it is unearned income only) in order to avoid paying any tax when the child's unearned income is under the standard deduction ($1000? [1]). Right?

----- [1] IRS Pub 929 for 2012 returns specifies a limit and standard deduction of $950 for unearned income only, under 65 and not blind. An Inuit Turbo Tax webpage says the limit is $1000 for 2013. Presumably, that is also the 2013 standard deduction. TBD.

Reply to
qguy
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You are referencing the Kiddie Tax. In 2013 it's $1000. That is, for unearned income, they get $1000 standard deduction, and another $1000 at their rate. When they start to have earned income, their standard deduction moves to a higher, normal level against earned income.

They can file an independent return all along, but if the unearned income exceeds the Kiddie limit, they are taxed at your rate, and your income lever is reported on their return.

Reply to
JoeTaxpayer

[....]

Yes, if a dependent child's unearned income (and no earned income) exceeds $2000.

But my question was about the case where the unearned income (and no earned income) is __less_than__ $1000, the amount above which a child "must" file her own income tax return.

I had presumed the amount __less_than__ $1000 would be added to the parent's gross income. In that case, it would be taxed, I thought.

If that were so, it would be beneficial for the child to file her own income tax return, even though it is not a "must", since such income would be nullified by the child's standard deduction. I was asking if that was permissible.

However, I had not read the rules for including a child's unearned income in the parent's gross income. In fact, I still cannot find the applicable rules. (Any pointers?)

But this quote from a nolo.com webpage suggests that the rule is: if a child's unearned income (and no earned income) is not more than the child's standard deduction ($1000 for 2013), it is not included in the parent's gross income. To wit:

"Under the kiddie tax [....] Any unearned income below the standard deduction amount ($1,000 in 2013; $950 in 2012) is not taxed or reported to the IRS" [1].

----- [1]

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Reply to
qguy
[...]

One, the dependent child ALWAYS has the option to file his/her own return, and two, excluding the time and cost of preparing the separate returns, you are never worse off, and sometimes better off, with filing separate returns for the kids.

The kiddie tax will be the same no matter what. It's the option to include your child's income on your return (if it meets certain qualifications) that is the issue here.

From the 2012 Form 8814 instructions:

"If your child received qualified dividends or capital gain distributions, you may pay up to $95 more tax if you make this election instead of filing a separate tax return for the child. This is because the tax rate on the child?s income between $950 and $1,900 is 10% if you make this election. However, if you file a separate return for the child, the tax rate may be as low as 0% (zero percent) because of the preferential tax rates for qualified dividends and capital gain distributions."

Reply to
Mark Bole

[....]

And isn't true that you are __always__ better off filing a separate return if a child's unearned income does not exceed the child's standard deduction ($1000 for 2013) and there is no earned income?

PS: I might have read too much into the nolo.com quote that I posted.

Reply to
qguy

In your last example, the child would have no filing requirement and no tax due. (Except for some unusual situations, which are covered in various IRS pubs, such as 929).

Reply to
Mark Bole

"Mark Bole" wrote"

(Actually, that was always my example for this discussion. ;->)

Thanks. I was thinking the same thing -- finally. Klunk!

Reply to
qguy

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