Have gone through this with my DD, so my opinion FWIW:
1. The unearned income is liable for Kiddie Tax. There is a Worksheet to calculate, and it has arbitrary elements, but it’s your kids’ choice whether or not to risk otherwise with the IRS.
2. For me, mitigation was a better strategy for the three calendar years DD is liable for Kiddie Tax.
I think the amount liable for KT is the lower of (a) UI minus $2,500, or (b) Gross income minus deductions, e.g Standard Deduction plus traditional IRA contribution would decrease your kids taxable income to ~$8k.
DW & I also contributed to traditional IRAs (rather than Roths) so as to create a lower KT rate for DD’s unearned income (it’s deductible for us, may not be for you).
DD also availed of AOTC for two of the three years KT applies.
The key is calculating what KT rate, and then mitigating as best you can.
1. The unearned income is liable for Kiddie Tax. There is a Worksheet to calculate, and it has arbitrary elements, but it’s your kids’ choice whether or not to risk otherwise with the IRS.
2. For me, mitigation was a better strategy for the three calendar years DD is liable for Kiddie Tax.
I think the amount liable for KT is the lower of (a) UI minus $2,500, or (b) Gross income minus deductions, e.g Standard Deduction plus traditional IRA contribution would decrease your kids taxable income to ~$8k.
DW & I also contributed to traditional IRAs (rather than Roths) so as to create a lower KT rate for DD’s unearned income (it’s deductible for us, may not be for you).
DD also availed of AOTC for two of the three years KT applies.
The key is calculating what KT rate, and then mitigating as best you can.
Statistics: Posted by Big Gun — Thu Aug 01, 2024 10:23 am — Replies 19 — Views 1116