Child under 14 (kiddie tax) - can the parent choose not to claim child as dependent?

Question

My son (8 years old) has a custodial account. This year his investment account made more than $1600 and triggers the kiddie tax to tax the rest of the income at parent's tax rate.

Is it possible to file my child's return as an individual and not claim him as a dependent on the parent's tax return. That way, the child's return can get the $5000 standard deduction (which will be way more than his income this year).

Answer 1

You would have to take the personal exemption on your return and tax his income above the $1,700 at your rate. Even if you don't claim him as an exemption he may not claim himself because you are entitled to the exemption. The standard deduction for a dependent child for 2006 is $850. You would pay tax at his rate for the second $850 and at your rate above the $1,700. Long term capital gain is still taxed at 15% for your son.
The 2006 tax act has now changed the age for the kiddie tax from 14 to age 18. Your Congress and President strike again.
The best option you have to save tax here is to invest in a manner that has growth in value rather than current interest income. You could also transfer the funds in the investment account into a custodian 529 College Savings account. Once this is done there would not be any further taxable income. And if the funds are used for post secondary education there would never be a any taxable income.

Answer 2

You do not have to claim your child on your taxes, BUT if you don't claim him, he CANNOT claim himself. He is your dependant. If you don't claim him, the exemption for him will be lost. IRS rules state if you are a dependant of someone else, you cannot claim your own exemption. You could claim him on your taxes and then file a seperate return for him without him claiming himself. I would advise taking your paperwork to a tax office and having them figure out what is best for your situation. Below is a link to the IRS website on this info. The page will look blank, but scroll down and you will find it.

Answer 3

You do not have to claim your child as a dependant, but your child cannot file as an individual since he can be claimed as a dependant on his parent(s) return.

Answer 4

The child is your dependent. If he has only investment income, his standard deduction is $850. He cannot take the $5,000 deduction for non-dependents even if you do not claim him.

Answer 5

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