Yes, I pay those expenses, but they would have to add up to more than $46,000 per year to make her support less than 50%. I did the spreadsheet provided by the IRS last year, and I came up with about $25k in expenses, as I recall, but I haven’t done it for 2015. College room and board was the biggest expense, and that was about $13k and books and spending money during school was about $4000 additional. All the other imputed and shared stuff (summer rent, food, health insurance, vacation, airline tickets, clothing) would have to add up to more than $30,000 to get to more than 50%, and it’s not anywhere close to that.
Oops, another thing for me to look into. So does that mean that the kiddie tax hits kids who provide more than 50% of their support, or do the support rules still apply? It doesn’t make sense to me that a kiddie tax would apply to a college student that is an adult and pays more than 50% of her support,
I provided a link that details the rules. It mentioned that college students who have earned income of less than 50% of their support need to file form 8615. Does your D have earned income of more than half of the $25k you provide for her support?
You only mentioned unearned investment income. Not earned income from a job.
No, not this year. She only has about $5000 in earned income from two summer jobs and a school job.
But to clarify, would it be earned income equal to 50% of her portion of support? ($46k), 50% of my support ($25k)? or 50% of her entire support ($71k)? It would make a difference because this year she has a summer job that will pay somewhere around $25k which added up with her school job might get up to a point where she can meet the earned income test. I could also adjust where the payments come from to pay her tuition (from her account or my account) to get her closer to the 50% number, but that wouldn’t make a difference if the calculation is based on her entire support.
Hunt- thanks for clarifying… and to the other tax folks who weigh in- thanks as well.
My kids are all independent now but i do seem to recall a tutorial on the kiddie tax from way back when- it was imposed precisely to prevent high net worth people from sheltering income by transferring it to the kiddies. So the idea that a kids investment income alone could provide enough support to meet the threshold seemed unlikely to me.
Thanks, so if I provide roughly a third of support, she provides roughly 2/3rds of her own support, and half of that is earned income, she’s still subject to the kiddie tax. She’s just going to have to find a summer job that pays more.
Well if her job will pay over $25k this year, just make sure she pays for cellphone, rent, food, etc from her own earned income and then maybe next year she won’t have to pay kiddie tax.
There is a support test worksheet you can look up.
Just between you and me, how is the IRS really ever going to catch a student who makes, say, $28,000 and fails to file the kiddie tax form along with her return? It’s not like the IRS computers can match her tax return to my return; nor do they know what her overall lifestyle support costs are. She would look like any other taxpayer making $28,000 per year.
But she is not any taxpayer, she is a fulltime student and has high unearned income.
If she is independent of your taxes then why couldn’t she pay most of her own support from her UTMA account and $25k work income? She could easily pay the $13k of room and board from her own earnings.
And I guess she will also be taking the AOTC, so that may be enough to trigger IRS attention. I don’t really care from a $$$ perspective (and certainly not enough to get my D in trouble with the IRS), and the benefits from the AOTC make up for the kiddie tax.
I though when figuring out support, all scholarships were excluded, as well as the tuition and other expenses they pay. For example, if student’s tuition was $30k and scholarship was $30k, that figure is just left out. Parent didn’t pay, student doesn’t get credit or dinged for that, it just isn’t there. If student also got $15k for r&b, that’s out too. So, what is the cost of this students living expenses for the year? It may only be a few thousand dollars - summer rooming, cell phone, car insuranc3. The question then becomes who paid more than half of those, as small as they might be?
What I understood from the above discussion and this article http://www.forbes.com/sites/baldwin/2013/07/24/ducking-the-kiddie-tax/#310dee8c1222 is that avoiding the kiddie tax would be based on my D having [bold]earned[/bold] income exceeding half of her overall support. Including tuition, room and board, imputed household expenses, etc. that is around $71,000, so she would have to have earned income of $35,501 this year to avoid the kiddie tax. Even with her $25,000 summer job, she’s not going to come close to making that much. And no matter how much I my move around which account (her UTMA or my bank) her tuition comes out, it will not solve the kiddie tax problem because my money and her unearned income are equally bad for determining support for kiddie tax purposes. Anyone see any problems in this? I’m going to run a test doing the Form 8615.
She’s still has more a few more years to go, and I wouldn’t be surprised if she also went to graduate school before she is 24.
I understand that one also can get married in order to get out of the kiddie tax but seems a bit drastic for a parent to counsel as a tax avoidance strategy.
The answer is it depends. Run it both ways. I did not declare my son this year, but I would not assume someone else has the same tax situation as me. It saved me around $1,100 not declaring him.
