tax question?

Question

my 2 kids, who are minors inherrited some money from their grandma. they earn about $5000 each in interest on this money, do they have to file a tax return, and if not, at what point do they have to start paying taxes on passive income.

Answer 1

If any one can claim you as a dependent, then you must file your return when your unearned income (interest, dividends, capital gains) is more than $850.

Parent can choose to include the child's interest and dividends on the parent's return if certain requirements are met. Use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose.
If child's investment income is less than $1700, it will be taxed at child's tax rate. If the Investment income is more than $1700 it will be taxed at Parent's tax rate, and Form 8615, Tax for Children Under Age 18 Who Have Investment Income of More Than $1,700, must be completed and attached to the child's tax return.

Answer 2

If your children are under age 24 at the end of the year, they have to file tax returns because of the interest income. Furthermore, the taxes they pay are related to your taxes. This is because investment income for a child in excess of $1,700 is subject to tax at the parent's rate, if that rate is higher than the child's rate.

You will have to do your tax return first, and then use that information when you (or your child) does his tax return.

Answer 3

Yes. A person who cannot be claimed as a dependent on someone else's tax return and has total income of "about $5000" would not owe tax. However, a child with only $5000 in income usually can be claimed as a dependent on the tax return of one of the child's parents. A person who can be claimed as a dependent on someone else's tax return AND has $5000 in unearned income must pay income tax.

Answer 4

I'm reading Form 706 at the IRS website ( http://www.irs.gov ) and it appears to me that when their grandmother died, a Form 706 should have been filed showing the value of the distributed inheritance.

If that form was filed, then the IRS should have record of the children having gotten the money, which means they should be filing tax returns now.

With the amount of interest they're earing, you'd do well to touch base with a tax professional and get their advice so that the kids don't end up in a real bind later.

Good luck.

Answer 5

Your children are subject to "kiddie tax."

That means the first $850 is not taxed.
The second $850 is taxed at 10%.
The rest is taxed at YOUR tax rate.

The income tax may be paid by either:

1. 1040 or 1040a per child, attach form 8615.
2. or file 1040 for mom/dad attach form 8814.

Answer 6

I would think that you or them would have to file on this money at any age. Either with your taxes or them filing separately. Not sure of the minimum age for filing taxes

Answer 7

You need the services of a good tax advisor. Find a CPA in your area. (Don't you already have a tax professional?)

Answer 8

see the tax man he wont bite

Answer 9

yes i geuss i dont know ask someone else