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Investment Planning |
Kids' Investment Income
Your children under age 18 can have investment income up to $1,900 in 2009 before the income will be taxed at the parent’s tax rate. This income limit threshold generally rises every year.
Investment income includes only interest, dividends, and capital gains that are passed through to shareholders from a mutual fund. It does not include capital gains from the sale of stock or mutual funds, and it also does not include wages that your child earned.
If your child has sold stock or mutual funds, the child is required to file a tax return. If your child has earned wages, he may be required to file his own tax return. For 2009, part of a child's investment income may be taxed at the parent's tax rate if:
- The child meets one of the following age requirements:
- The child was under age 18 at the end of the tax year
- The child was under age 19 at the end of the tax year and the child's earned income does not exceed one-half of the child's support for the year, or
- The child was a full-time student who was under age 24 at the end of the tax year and the child's earned income does not exceed one half of the child's support for the year (excluding scholarships)
- At least one of the child's parents was alive at the end of the tax year
- The child's investment income for the 2009 tax year was more than $1,900
- The child is required to file a tax return for the tax year, and
- The child does not file a joint return for the year
The standard deduction for dependents, such as your children or your elderly parents, was $950 in 2009, and rises each year. The IRS website can provide more information on how children’s income is taxed, including publications and forms. Start with Publication 929, Tax Rules for Children and Dependents.
Tips Disclaimer
These tips contain information that may change over time as a result of new tax legislation. Although we make efforts to keep this information current, you should check with your tax advisor before taking action based upon any information contained in these tips.