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Tax Planning Us 1040x

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Tax Planning Us 1040x

Tax planning us 1040x 4. Tax planning us 1040x   Reporting Gains and Losses Table of Contents Introduction Topics - This chapter discusses: Useful Items - You may want to see: Information Returns Schedule D and Form 8949Long and Short Term Net Gain or Loss Treatment of Capital Losses Capital Gains Tax Rates Form 4797Mark-to-market election. Tax planning us 1040x Introduction This chapter explains how to report capital gains and losses and ordinary gains and losses from sales, exchanges, and other dispositions of property. Tax planning us 1040x Although this discussion refers to Schedule D (Form 1040) and Form 8949, many of the rules discussed here also apply to taxpayers other than individuals. Tax planning us 1040x However, the rules for property held for personal use usually will not apply to taxpayers other than individuals. Tax planning us 1040x Topics - This chapter discusses: Information returns Schedule D (Form 1040) Form 4797 Form 8949 Useful Items - You may want to see: Publication 550 Investment Income and Expenses 537 Installment Sales Form (and Instructions) Schedule D (Form 1040) Capital Gains and Losses 1099-B Proceeds From Broker and Barter Exchange Transactions 1099-S Proceeds From Real Estate Transactions 4684 Casualties and Thefts 4797 Sales of Business Property 6252 Installment Sale Income 6781 Gains and Losses from Section 1256 Contracts and Straddles 8824 Like-Kind Exchanges 8949 Sales and Other Dispositions of Capital Assets See chapter 5 for information about getting publications and forms. Tax planning us 1040x Information Returns If you sell or exchange certain assets, you should receive an information return showing the proceeds of the sale. Tax planning us 1040x This information is also provided to the IRS. Tax planning us 1040x Form 1099-B. Tax planning us 1040x   If you sold property, such as stocks, bonds, or certain commodities, through a broker, you should receive Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or a substitute statement from the broker. Tax planning us 1040x Use the Form 1099-B or a substitute statement to complete Form 8949 and/or Schedule D. Tax planning us 1040x Whether or not you receive 1099-B, you must report all taxable sales of stock, bonds, commodities, etc. Tax planning us 1040x on Form 8949 and/or Schedule D, as applicable. Tax planning us 1040x For more information on figuring gains and losses from these transactions, see chapter 4 in Publication 550. Tax planning us 1040x For information on reporting the gains and losses, see the Instructions for Form 8949 and the Instructions for Schedule D (Form 1040). Tax planning us 1040x Form 1099-S. Tax planning us 1040x   An information return must be provided on certain real estate transactions. Tax planning us 1040x Generally, the person responsible for closing the transaction (the “real estate reporting person”) must report on Form 1099-S sales or exchanges of the following types of property. Tax planning us 1040x Land (improved or unimproved), including air space. Tax planning us 1040x An inherently permanent structure, including any residential, commercial, or industrial building. Tax planning us 1040x A condominium unit and its related fixtures and common elements (including land). Tax planning us 1040x Stock in a cooperative housing corporation. Tax planning us 1040x If you sold or exchanged any of the above types of property, the “real estate reporting person” must give you a copy of Form 1099-S or a statement containing the same information as the Form 1099-S. Tax planning us 1040x The “real estate reporting person” could include the buyer's attorney, your attorney, the title or escrow company, a mortgage lender, your broker, the buyer's broker, or the person acquiring the biggest interest in the property. Tax planning us 1040x   For more information see chapter 4 in Publication 550. Tax planning us 1040x Also, see the Instructions for Form 8949. Tax planning us 1040x Schedule D and Form 8949 Form 8949. Tax planning us 1040x   Individuals, corporations, and partnerships, use Form 8949 to report the following. Tax planning us 1040x    Sales or exchanges of capital assets, including stocks, bonds, etc. Tax planning us 1040x , and real estate (if not reported on another form or schedule such as Form 4684, 4797, 6252, 6781, or 8824). Tax planning us 1040x Include these transactions even if you did not receive a Form 1099-B or 1099-S. Tax planning us 1040x Gains from involuntary conversions (other than from casualty or theft) of capital assets not held for business or profit. Tax planning us 1040x Nonbusiness bad debts. Tax planning us 1040x   Individuals, If you are filing a joint return, complete as many copies of Form 8949 as you need to report all of your and your spouse's transactions. Tax planning us 1040x You and your spouse may list your transactions on separate forms or you may combine them. Tax planning us 1040x However, you must include on your Schedule D the totals from all Forms 8949 for both you and your spouse. Tax planning us 1040x    Corporations and electing large partnerships also use Form 8949 to report their share of gain or loss from a partnership, S Corporation, estate or trust. Tax planning us 1040x   Business entities meeting certain criteria, may have an exception to some of the normal requirements for completing Form 8949. Tax planning us 1040x See the Instructions for Form 8949. Tax planning us 1040x Schedule D. Tax planning us 1040x    Use Schedule D (Form 1040) to figure the overall gain or loss from transactions reported on Form 8949, and to report certain transactions you do not have to report on Form 8949. Tax planning us 1040x Before completing Schedule D, you may have to complete other forms as shown below. Tax planning us 1040x    Complete all applicable lines of Form 8949 before completing lines 1b, 2, 3, 8b, 9, or 10 of your applicable Schedule D. Tax planning us 1040x Enter on Schedule D the combined totals from all your Forms 8949. Tax planning us 1040x For a sale, exchange, or involuntary conversion of business property, complete Form 4797 (discussed later). Tax planning us 1040x For a like-kind exchange, complete Form 8824. Tax planning us 1040x See Reporting the exchange under Like-Kind Exchanges in chapter 1. Tax planning us 1040x For an installment sale, complete Form 6252. Tax planning us 1040x See Publication 537. Tax planning us 1040x For an involuntary conversion due to casualty or theft, complete Form 4684. Tax planning us 1040x See Publication 547, Casualties, Disasters, and Thefts. Tax planning us 1040x For a disposition of an interest in, or property used in, an activity to which the at-risk rules apply, complete Form 6198, At-Risk Limitations. Tax planning us 1040x See Publication 925, Passive Activity and At-Risk Rules. Tax planning us 1040x For a disposition of an interest in, or property used in, a passive activity, complete Form 8582, Passive Activity Loss Limitations. Tax planning us 1040x See Publication 925. Tax planning us 1040x For gains and losses from section 1256 contracts and straddles, complete Form 6781. Tax planning us 1040x See Publication 550. Tax planning us 1040x Personal-use property. Tax planning us 1040x   Report gain on the sale or exchange of property held for personal use (such as your home) on Form 8949 and Schedule D (Form 1040), as applicable. Tax planning us 1040x Loss from the sale or exchange of property held for personal use is not deductible. Tax planning us 1040x But if you had a loss from the sale or exchange of real estate held for personal use for which you received a Form 1099-S, report the transaction on Form 8949 and Schedule D, even though the loss is not deductible. Tax planning us 1040x See the Instructions for Schedule D (Form 1040) and the Instructions for Form 8949 for information on how to report the transaction. Tax planning us 1040x Long and Short Term Where you report a capital gain or loss depends on how long you own the asset before you sell or exchange it. Tax planning us 1040x The time you own an asset before disposing of it is the holding period. Tax planning us 1040x If you received a Form 1099-B, (or substitute statement) box 1c may help you determine whether the gain or loss is short-term or long-term. Tax planning us 1040x If you hold a capital asset 1 year or less, the gain or loss from its disposition is short term. Tax planning us 1040x Report it in Part I of Form 8949 and/or Schedule D, as applicable. Tax planning us 1040x If you hold a capital asset longer than 1 year, the gain or loss from its disposition is long term. Tax planning us 1040x Report it in Part II of Form 8949 and/or Schedule D, as applicable. Tax planning us 1040x   Table 4-1. Tax planning us 1040x Do I Have a Short-Term or Long-Term Gain or Loss? IF you hold the property. Tax planning us 1040x . Tax planning us 1040x . Tax planning us 1040x  THEN you have a. Tax planning us 1040x . Tax planning us 1040x . Tax planning us 1040x 1 year or less, Short-term capital gain or  loss. Tax planning us 1040x More than 1 year, Long-term capital gain or  loss. Tax planning us 1040x These distinctions are essential to correctly arrive at your net capital gain or loss. Tax planning us 1040x Capital losses are allowed in full against capital gains plus up to $3,000 of ordinary income. Tax planning us 1040x See Capital Gains Tax Rates, later. Tax planning us 1040x Holding period. Tax planning us 1040x   To figure if you held property longer than 1 year, start counting on the day following the day you acquired the property. Tax planning us 1040x The day you disposed of the property is part of your holding period. Tax planning us 1040x Example. Tax planning us 1040x If you bought an asset on June 19, 2012, you should start counting on June 20, 2012. Tax planning us 1040x If you sold the asset on June 19, 2013, your holding period is not longer than 1 year, but if you sold it on June 20, 2013, your holding period is longer than 1 year. Tax planning us 1040x Patent property. Tax planning us 1040x   If you dispose of patent property, you generally are considered to have held the property longer than 1 year, no matter how long you actually held it. Tax planning us 1040x For more information, see Patents in chapter 2. Tax planning us 1040x Inherited property. Tax planning us 1040x   If you inherit property, you are considered to have held the property longer than 1 year, regardless of how long you actually held it. Tax planning us 1040x Installment sale. Tax planning us 1040x   The gain from an installment sale of an asset qualifying for long-term capital gain treatment in the year of sale continues to be long term in later tax years. Tax planning us 1040x If it is short term in the year of sale, it continues to be short term when payments are received in later tax years. Tax planning us 1040x    The date the installment payment is received determines the capital gains rate that should be applied not the date the asset was sold under an installment contract. Tax planning us 1040x Nontaxable exchange. Tax planning us 1040x   If you acquire an asset in exchange for another asset and your basis for the new asset is figured, in whole or in part, by using your basis in the old property, the holding period of the new property includes the holding period of the old property. Tax planning us 1040x That is, it begins on the same day as your holding period for the old property. Tax planning us 1040x Example. Tax planning us 1040x You bought machinery on December 4, 2012. Tax planning us 1040x On June 4, 2013, you traded this machinery for other machinery in a nontaxable exchange. Tax planning us 1040x On December 5, 2013, you sold the machinery you got in the exchange. Tax planning us 1040x Your holding period for this machinery began on December 5, 2012. Tax planning us 1040x Therefore, you held it longer than 1 year. Tax planning us 1040x Corporate liquidation. Tax planning us 1040x   The holding period for property you receive in a liquidation generally starts on the day after you receive it if gain or loss is recognized. Tax planning us 1040x Profit-sharing plan. Tax planning us 1040x   The holding period of common stock withdrawn from a qualified contributory profit-sharing plan begins on the day following the day the plan trustee delivered the stock to the transfer agent with instructions to reissue the stock in your name. Tax planning us 1040x Gift. Tax planning us 1040x   If you receive a gift of property and your basis in it is figured using the donor's basis, your holding period includes the donor's holding period. Tax planning us 1040x For more information on basis, see Publication 551, Basis of Assets. Tax planning us 1040x Real property. Tax planning us 1040x   To figure how long you held real property, start counting on the day after you received title to it or, if earlier, the day after you took possession of it and assumed the burdens and privileges of ownership. Tax planning us 1040x   However, taking possession of real property under an option agreement is not enough to start the holding period. Tax planning us 1040x The holding period cannot start until there is an actual contract of sale. Tax planning us 1040x The holding period of the seller cannot end before that time. Tax planning us 1040x Repossession. Tax planning us 1040x   If you sell real property but keep a security interest in it and then later repossess it, your holding period for a later sale includes the period you held the property before the original sale, as well as the period after the repossession. Tax planning us 1040x Your holding period does not include the time between the original sale and the repossession. Tax planning us 1040x That is, it does not include the period during which the first buyer held the property. Tax planning us 1040x Nonbusiness bad debts. Tax planning us 1040x   Nonbusiness bad debts are short-term capital losses. Tax planning us 1040x For information on nonbusiness bad debts, see chapter 4 of Publication 550. Tax planning us 1040x    Net Gain or Loss The totals for short-term capital gains and losses and the totals for long-term capital gains and losses must be figured separately. Tax planning us 1040x Net short-term capital gain or loss. Tax planning us 1040x   Combine your short-term capital gains and losses, including your share of short-term capital gains or losses from partnerships, S corporations, and fiduciaries and any short-term capital loss carryover. Tax planning us 1040x Do this by adding all your short-term capital gains. Tax planning us 1040x Then add all your short-term capital losses. Tax planning us 1040x Subtract the lesser total from the other. Tax planning us 1040x The result is your net short-term capital gain or loss. Tax planning us 1040x Net long-term capital gain or loss. Tax planning us 1040x   Follow the same steps to combine your long-term capital gains and losses. Tax planning us 1040x Include the following items. Tax planning us 1040x Net section 1231 gain from Part I, Form 4797, after any adjustment for nonrecaptured section 1231 losses from prior tax years. Tax planning us 1040x Capital gain distributions from regulated investment companies (mutual funds) and real estate investment trusts. Tax planning us 1040x Your share of long-term capital gains or losses from partnerships, S corporations, and fiduciaries. Tax planning us 1040x Any long-term capital loss carryover. Tax planning us 1040x The result from combining these items with other long-term capital gains and losses is your net long-term capital gain or loss. Tax planning us 1040x Net gain. Tax planning us 1040x   If the total of your capital gains is more than the total of your capital losses, the difference is taxable. Tax planning us 1040x Different tax rates may apply to the part that is a net capital gain. Tax planning us 1040x See Capital Gains Tax Rates, later. Tax planning us 1040x Net loss. Tax planning us 1040x   If the total of your capital losses is more than the total of your capital gains, the difference is deductible. Tax planning us 1040x But there are limits on how much loss you can deduct and when you can deduct it. Tax planning us 1040x See Treatment of Capital Losses, next. Tax planning us 1040x    Treatment of Capital Losses If your capital losses are more than your capital gains, you can deduct the difference as a capital loss deduction even if you do not have ordinary income to offset it. Tax planning us 1040x The yearly limit on the amount of the capital loss you can deduct is $3,000 ($1,500 if you are married and file a separate return). Tax planning us 1040x Table 4-2. Tax planning us 1040x Holding Period for Different Types of Acquisitions Type of acquisition: When your holding period starts: Stocks and bonds bought on a securities market Day after trading date you bought security. Tax planning us 1040x Ends on trading date you sold security. Tax planning us 1040x U. Tax planning us 1040x S. Tax planning us 1040x Treasury notes and bonds If bought at auction, day after notification of bid acceptance. Tax planning us 1040x If bought through subscription, day after subscription was submitted. Tax planning us 1040x Nontaxable exchanges Day after date you acquired old property. Tax planning us 1040x Gift If your basis is giver's adjusted basis, same day as giver's holding period began. Tax planning us 1040x If your basis is FMV, day after date of gift. Tax planning us 1040x Real property bought Generally, day after date you received title to the property. Tax planning us 1040x Real property repossessed Day after date you originally received title to the property, but does not include time between the original sale and date of repossession. Tax planning us 1040x Capital loss carryover. Tax planning us 1040x   Generally, you have a capital loss carryover if either of the following situations applies to you. Tax planning us 1040x Your net loss is more than the yearly limit. Tax planning us 1040x Your taxable income without your deduction for exemptions is less than zero. Tax planning us 1040x If either of these situations applies to you for 2013, see Capital Losses under Reporting Capital Gains and Losses in chapter 4 of Publication 550 to figure the amount you can carryover to 2014. Tax planning us 1040x Example. Tax planning us 1040x Bob and Gloria Sampson sold property in 2013. Tax planning us 1040x The sale resulted in a capital loss of $7,000. Tax planning us 1040x The Sampsons had no other capital transactions. Tax planning us 1040x On their joint 2013 return, the Sampsons deduct $3,000, the yearly limit. Tax planning us 1040x They had taxable income of $2,000. Tax planning us 1040x The unused part of the loss, $4,000 ($7,000 − $3,000), is carried over to 2014. Tax planning us 1040x If the Sampsons' capital loss had been $2,000, it would not have been more than the yearly limit. Tax planning us 1040x Their capital loss deduction would have been $2,000. Tax planning us 1040x They would have no carryover to 2014. Tax planning us 1040x Short-term and long-term losses. Tax planning us 1040x   When you carry over a loss, it retains its original character as either long term or short term. Tax planning us 1040x A short-term loss you carry over to the next tax year is added to short-term losses occurring in that year. Tax planning us 1040x A long-term loss you carry over to the next tax year is added to long-term losses occurring in that year. Tax planning us 1040x A long-term capital loss you carry over to the next year reduces that year's long-term gains before its short-term gains. Tax planning us 1040x   If you have both short-term and long-term losses, your short-term losses are used first against your allowable capital loss deduction. Tax planning us 1040x If, after using your short-term losses, you have not reached the limit on the capital loss deduction, use your long-term losses until you reach the limit. Tax planning us 1040x To figure your capital loss carryover from 2013 to 2014 use the Capital Loss Carryover Worksheet in the 2013 Instructions for Schedule D (Form 1040). Tax planning us 1040x Joint and separate returns. Tax planning us 1040x   On a joint return, the capital gains and losses of spouses are figured as the gains and losses of an individual. Tax planning us 1040x If you are married and filing a separate return, your yearly capital loss deduction is limited to $1,500. Tax planning us 1040x Neither you nor your spouse can deduct any part of the other's loss. Tax planning us 1040x   If you and your spouse once filed separate returns and are now filing a joint return, combine your separate capital loss carryovers. Tax planning us 1040x However, if you and your spouse once filed jointly and are now filing separately, any capital loss carryover from the joint return can be deducted only on the return of the spouse who actually had the loss. Tax planning us 1040x Death of taxpayer. Tax planning us 1040x   Capital losses cannot be carried over after a taxpayer's death. Tax planning us 1040x They are deductible only on the final income tax return filed on the decedent's behalf. Tax planning us 1040x The yearly limit discussed earlier still applies in this situation. Tax planning us 1040x Even if the loss is greater than the limit, the decedent's estate cannot deduct the difference or carry it over to following years. Tax planning us 1040x Corporations. Tax planning us 1040x   A corporation can deduct capital losses only up to the amount of its capital gains. Tax planning us 1040x In other words, if a corporation has a net capital loss, it cannot be deducted in the current tax year. Tax planning us 1040x It must be carried to other tax years and deducted from capital gains occurring in those years. Tax planning us 1040x For more information, see Publication 542. Tax planning us 1040x Capital Gains Tax Rates The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. Tax planning us 1040x These lower rates are called the maximum capital gains rates. Tax planning us 1040x The term “net capital gain” means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss. Tax planning us 1040x For 2013, the maximum tax rates for individuals are 0%, 15%, 20%, 25%, and 28%. Tax planning us 1040x Also, individuals, use the Qualified Dividends and Capital Gain Worksheet in the Instructions for Form 1040, or the Schedule D Tax Computation Worksheet in the Instructions for Schedule D (Form 1040) (whichever applies) to figure your tax if you have qualified dividends or net capital gain. Tax planning us 1040x For more information, see chapter 4 of Publication 550. Tax planning us 1040x Also see the Instructions for Schedule D (Form 1040). Tax planning us 1040x Unrecaptured section 1250 gain. Tax planning us 1040x   Generally, this is the part of any long-term capital gain on section 1250 property (real property) that is due to depreciation. Tax planning us 1040x Unrecaptured section 1250 gain cannot be more than the net section 1231 gain or include any gain otherwise treated as ordinary income. Tax planning us 1040x Use the worksheet in the Schedule D instructions to figure your unrecaptured section 1250 gain. Tax planning us 1040x For more information about section 1250 property and net section 1231 gain, see chapter 3. Tax planning us 1040x Form 4797 Use Form 4797 to report: The sale or exchange of: Property used in your trade or business; Depreciable and amortizable property; Oil, gas, geothermal, or other mineral properties; and Section 126 property. Tax planning us 1040x The involuntary conversion (from other than casualty or theft) of property used in your trade or business and capital assets held in connection with a trade or business or a transaction entered into for profit. Tax planning us 1040x The disposition of noncapital assets (other than inventory or property held primarily for sale to customers in the ordinary course of your trade or business). Tax planning us 1040x The disposition of capital assets not reported on Schedule D. Tax planning us 1040x The gain or loss (including any related recapture) for partners and S corporation shareholders from certain section 179 property dispositions by partnerships (other than electing large partnerships) and S corporations. Tax planning us 1040x The computation of recapture amounts under sections 179 and 280F(b)(2) when the business use of section 179 or listed property decreases to 50% or less. Tax planning us 1040x Gains or losses treated as ordinary gains or losses, if you are a trader in securities or commodities and made a mark-to-market election under Internal Revenue Code section 475(f). Tax planning us 1040x You can use Form 4797 with Form 1040, 1065, 1120, or 1120S. Tax planning us 1040x Section 1231 gains and losses. Tax planning us 1040x   Show any section 1231 gains and losses in Part I. Tax planning us 1040x Carry a net gain to Schedule D (Form 1040) as a long-term capital gain. Tax planning us 1040x Carry a net loss to Part II of Form 4797 as an ordinary loss. Tax planning us 1040x   If you had any nonrecaptured net section 1231 losses from the preceding 5 tax years, reduce your net gain by those losses and report the amount of the reduction as an ordinary gain in Part II. Tax planning us 1040x Report any remaining gain on Schedule D (Form 1040). Tax planning us 1040x See Section 1231 Gains and Losses in chapter 3. Tax planning us 1040x Ordinary gains and losses. Tax planning us 1040x   Show any ordinary gains and losses in Part II. Tax planning us 1040x This includes a net loss or a recapture of losses from prior years figured in Part I of Form 4797. Tax planning us 1040x It also includes ordinary gain figured in Part III. Tax planning us 1040x Mark-to-market election. Tax planning us 1040x   If you made a mark-to-market election, you should report all gains and losses from trading as ordinary gains and losses in Part II of Form 4797, instead of as capital gains and losses on Form 8949 and Schedule D (Form 1040). Tax planning us 1040x See the Instructions for Form 4797. Tax planning us 1040x Also see Special Rules for Traders in Securities, in chapter 4 of Publication 550. Tax planning us 1040x Ordinary income from depreciation. Tax planning us 1040x   Figure the ordinary income from depreciation on personal property and additional depreciation on real property (as discussed in chapter 3) in Part III. Tax planning us 1040x Carry the ordinary income to Part II of Form 4797 as an ordinary gain. Tax planning us 1040x Carry any remaining gain to Part I as section 1231 gain, unless it is from a casualty or theft. Tax planning us 1040x Carry any remaining gain from a casualty or theft to Form 4684. 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Tax planning us 1040x 31. Tax planning us 1040x   Tax on Unearned Income of Certain Children Table of Contents What's New Introduction Useful Items - You may want to see: Which Parent's Return To UseParents Who Do Not File a Joint Return Parent's Election To Report Child's Interest and DividendsEffect of Making the Election Figuring Child's Income Figuring Additional Tax Tax for Certain Children Who Have Unearned IncomeProviding Parental Information (Form 8615, lines A–C) Step 1. Tax planning us 1040x Figuring the Child's Net Unearned Income (Form 8615, Part I) Step 2. Tax planning us 1040x Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) Step 3. Tax planning us 1040x Figuring the Child's Tax (Form 8615, Part III) What's New Net Investment Income Tax. Tax planning us 1040x . Tax planning us 1040x  For tax years beginning after December 31, 2012, a child whose tax is figured on Form 8615 may be subject to the Net Investment Income Tax (NIIT). Tax planning us 1040x NIIT is a 3. Tax planning us 1040x 8% tax on the lesser of the net investment income or the excess of the child's modified adjusted gross income (MAGI) over the threshold amount. Tax planning us 1040x Use Form 8960, Net Investment Income Tax, to figure this tax. Tax planning us 1040x For more information on NIIT, go to www. Tax planning us 1040x irs. Tax planning us 1040x gov and enter “Net Investment Income Tax” in the search box. Tax planning us 1040x Introduction This chapter discusses the following two rules that may affect the tax on unearned income of certain children. Tax planning us 1040x If the child's interest and dividend income (including capital gain distributions) total less than $10,000, the child's parent may be able to choose to include that income on the parent's return rather than file a return for the child. Tax planning us 1040x (See Parent's Election To Report Child's Interest and Dividends , later. Tax planning us 1040x ) If the child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. Tax planning us 1040x (See Tax for Certain Children Who Have Unearned Income , later. Tax planning us 1040x ) For these rules, the term “child” includes a legally adopted child and a stepchild. Tax planning us 1040x These rules apply whether or not the child is a dependent. Tax planning us 1040x Useful Items - You may want to see: Publication 929 Tax Rules for Children and Dependents Form (and Instructions) 8615 Tax for Certain Children Who Have Unearned Income 8814 Parents' Election To Report Child's Interest and Dividends Which Parent's Return To Use If a child's parents are married to each other and file a joint return, use the joint return to figure the tax on the child's unearned income. Tax planning us 1040x The tax rate and other return information from that return are used to figure the child's tax as explained later under Tax for Certain Children Who Have Unearned Income . Tax planning us 1040x Parents Who Do Not File a Joint Return For parents who do not file a joint return, the following discussions explain which parent's tax return must be used to figure the tax. Tax planning us 1040x Only the parent whose tax return is used can make the election described under Parent's Election To Report Child's Interest and Dividends . Tax planning us 1040x Parents are married. Tax planning us 1040x   If the child's parents file separate returns, use the return of the parent with the greater taxable income. Tax planning us 1040x Parents not living together. Tax planning us 1040x   If the child's parents are married to each other but not living together, and the parent with whom the child lives (the custodial parent) is considered unmarried, use the return of the custodial parent. Tax planning us 1040x If the custodial parent is not considered unmarried, use the return of the parent with the greater taxable income. Tax planning us 1040x   For an explanation of when a married person living apart from his or her spouse is considered unmarried, see Head of Household in chapter 2. Tax planning us 1040x Parents are divorced. Tax planning us 1040x   If the child's parents are divorced or legally separated, and the parent who had custody of the child for the greater part of the year (the custodial parent) has not remarried, use the return of the custodial parent. Tax planning us 1040x Custodial parent remarried. Tax planning us 1040x   If the custodial parent has remarried, the stepparent (rather than the noncustodial parent) is treated as the child's other parent. Tax planning us 1040x Therefore, if the custodial parent and the stepparent file a joint return, use that joint return. Tax planning us 1040x Do not use the return of the noncustodial parent. Tax planning us 1040x   If the custodial parent and the stepparent are married, but file separate returns, use the return of the one with the greater taxable income. Tax planning us 1040x If the custodial parent and the stepparent are married but not living together, the earlier discussion under Parents not living together applies. Tax planning us 1040x Parents never married. Tax planning us 1040x   If a child's parents have never been married to each other, but lived together all year, use the return of the parent with the greater taxable income. Tax planning us 1040x If the parents did not live together all year, the rules explained earlier under Parents are divorced apply. Tax planning us 1040x Widowed parent remarried. Tax planning us 1040x   If a widow or widower remarries, the new spouse is treated as the child's other parent. Tax planning us 1040x The rules explained earlier under Custodial parent remarried apply. Tax planning us 1040x Parent's Election To Report Child's Interest and Dividends You may be able to elect to include your child's interest and dividend income (including capital gain distributions) on your tax return. Tax planning us 1040x If you do, your child will not have to file a return. Tax planning us 1040x You can make this election only if all the following conditions are met. Tax planning us 1040x Your child was under age 19 (or under age 24 if a full-time student) at the end of the year. Tax planning us 1040x Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends). Tax planning us 1040x The child's gross income was less than $10,000. Tax planning us 1040x The child is required to file a return unless you make this election. Tax planning us 1040x The child does not file a joint return for the year. Tax planning us 1040x No estimated tax payment was made for the year, and no overpayment from the previous year (or from any amended return) was applied to this year under your child's name and social security number. Tax planning us 1040x No federal income tax was taken out of your child's income under the backup withholding rules. Tax planning us 1040x You are the parent whose return must be used when applying the special tax rules for children. Tax planning us 1040x (See Which Parent's Return To Use , earlier. Tax planning us 1040x ) These conditions are also shown in Figure 31-A. Tax planning us 1040x Certain January 1 birthdays. Tax planning us 1040x   A child born on January 1, 1995, is considered to be age 19 at the end of 2013. Tax planning us 1040x You cannot make this election for such a child unless the child was a full-time student. Tax planning us 1040x   A child born on January 1, 1990, is considered to be age 24 at the end of 2013. Tax planning us 1040x You cannot make this election for such a child. Tax planning us 1040x Full-time student. Tax planning us 1040x   A full-time student is a child who during some part of each of any 5 calendar months of the year was enrolled as a full-time student at a school, or took a full-time on-farm training course given by a school or a state, county, or local government agency. Tax planning us 1040x A school includes a technical, trade, or mechanical school. Tax planning us 1040x It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. Tax planning us 1040x How to make the election. Tax planning us 1040x   Make the election by attaching Form 8814 to your Form 1040. Tax planning us 1040x (If you make this election, you cannot file Form 1040A or Form 1040EZ. Tax planning us 1040x ) Attach a separate Form 8814 for each child for whom you make the election. Tax planning us 1040x You can make the election for one or more children and not for others. Tax planning us 1040x Effect of Making the Election The federal income tax on your child's income may be more if you make the Form 8814 election. Tax planning us 1040x Rate may be higher. Tax planning us 1040x   If your child received qualified dividends or capital gain distributions, you may pay up to $100 more tax if you make this election instead of filing a separate tax return for the child. Tax planning us 1040x This is because the tax rate on the child's income between $1,000 and $2,000 is 10% if you make this election. Tax planning us 1040x However, if you file a separate return for the child, the tax rate may be as low as 0% (zero percent) because of the preferential tax rates for qualified dividends and capital gain distributions. Tax planning us 1040x Deductions you cannot take. Tax planning us 1040x   By making the Form 8814 election, you cannot take any of the following deductions that the child would be entitled to on his or her return. Tax planning us 1040x The additional standard deduction if the child is blind. Tax planning us 1040x The deduction for a penalty on an early withdrawal of your child's savings. Tax planning us 1040x Itemized deductions (such as your child's investment expenses or charitable contributions). Tax planning us 1040x Reduced deductions or credits. Tax planning us 1040x   If you use Form 8814, your increased adjusted gross income may reduce certain deductions or credits on your return including the following. Tax planning us 1040x Deduction for contributions to a traditional individual retirement arrangement (IRA). Tax planning us 1040x Deduction for student loan interest. Tax planning us 1040x Itemized deductions for medical expenses, casualty and theft losses, and certain miscellaneous expenses. Tax planning us 1040x Credit for child and dependent care expenses. Tax planning us 1040x Child tax credit. Tax planning us 1040x Education tax credits. Tax planning us 1040x Earned income credit. Tax planning us 1040x Penalty for underpayment of estimated tax. Tax planning us 1040x   If you make this election for 2013 and did not have enough tax withheld or pay enough estimated tax to cover the tax you owe, you may be subject to a penalty. Tax planning us 1040x If you plan to make this election for 2014, you may need to increase your federal income tax withholding or your estimated tax payments to avoid the penalty. Tax planning us 1040x See chapter 4 for more information. Tax planning us 1040x Figuring Child's Income Use Form 8814, Part I, to figure your child's interest and dividend income to report on your return. Tax planning us 1040x Only the amount over $2,000 is added to your income. Tax planning us 1040x The amount over $2,000 is shown on Form 8814, line 6. Tax planning us 1040x Unless the child's income includes qualified dividends or capital gain distributions (discussed next), the same amount is shown on Form 8814, line 12. Tax planning us 1040x Include the amount from Form 8814, line 12, on Form 1040, line 21. Tax planning us 1040x Enter “Form 8814” on the dotted line next to line 21. Tax planning us 1040x If you file more than one Form 8814, include the total amounts from line 12 of all your Forms 8814 on Form 1040, line 21. Tax planning us 1040x Capital gain distributions and qualified dividends. Tax planning us 1040x   If your child's dividend income included any capital gain distributions, see Capital gain distributions under Figuring Child's Income in Publication 929, Part 2. Tax planning us 1040x If your child's dividend income included any qualified dividends, see Qualified dividends under Figuring Child's Income in Publication 929, Part 2. Tax planning us 1040x Figuring Additional Tax Use Form 8814, Part II, to figure the tax on the $2,000 of your child's interest and dividends that you do not include in your income. Tax planning us 1040x This tax is added to the tax figured on your income. Tax planning us 1040x This additional tax is the smaller of: 10% × (your child's gross income − $1,000), or $100. Tax planning us 1040x Include the amount from line 15 of all your Forms 8814 in the total on Form 1040, line 44. Tax planning us 1040x Check box a on Form 1040, line 44. Tax planning us 1040x Figure 31-A. Tax planning us 1040x Can You Include Your Child's Income On Your Tax Return? Please click here for the text description of the image. Tax planning us 1040x Figure 31–A. Tax planning us 1040x Can You Include Your Child's Income On Your Tax Return? Tax for Certain Children Who Have Unearned Income If a child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. Tax planning us 1040x If the parent does not or cannot choose to include the child's income on the parent's return, use Form 8615 to figure the child's tax. Tax planning us 1040x Attach the completed form to the child's Form 1040 or Form 1040A. Tax planning us 1040x When Form 8615 must be filed. Tax planning us 1040x   Form 8615 must be filed for a child if all of the following statements are true. Tax planning us 1040x The child's investment income was more than $2,000. Tax planning us 1040x The child is required to file a return for 2013. Tax planning us 1040x The child either: Was under age 18 at the end of the year, Was age 18 at the end of the year and did not have earned income that was more than half of his or her support, or Was over age 18 and under age 24 at the end of the year, was a full-time student, and did not have earned income that was more than half of his or her support. Tax planning us 1040x At least one of the child's parents was alive at the end of 2013. Tax planning us 1040x The child does not file a joint return for 2013. Tax planning us 1040x These conditions are also shown in  Figure 31-B. Tax planning us 1040x Earned income. Tax planning us 1040x   Earned income includes salaries, wages, tips, and other payments received for personal services performed. Tax planning us 1040x It does not include unearned income as defined later in this chapter. Tax planning us 1040x Support. Tax planning us 1040x   Your child's support includes all amounts spent to provide the child with food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. Tax planning us 1040x To figure your child's support, count support provided by you, your child, and others. Tax planning us 1040x However, a scholarship received by your child is not considered support if your child is a full-time student. Tax planning us 1040x See chapter 3 for details about support. Tax planning us 1040x Certain January 1 birthdays. Tax planning us 1040x   Use the following chart to determine whether certain children with January 1 birthdays meet condition 3 under When Form 8615 must be filed. Tax planning us 1040x Figure 31-B. Tax planning us 1040x Do You Have To Use Form 8615 To Figure Your Child's Tax? Please click here for the text description of the image. Tax planning us 1040x Figure 31-B. Tax planning us 1040x Do You Have To Use Form 8615 To Figure Your Child's Tax?    IF a child was born on. Tax planning us 1040x . Tax planning us 1040x . Tax planning us 1040x THEN, at the end of 2013, the child is considered to be. Tax planning us 1040x . Tax planning us 1040x . Tax planning us 1040x January 1, 1996 18* January 1, 1995 19** January 1, 1990 24*** *This child is not under age 18. Tax planning us 1040x The child meets condition 3 only if the child did not have earned income that was more than half of the child's support. Tax planning us 1040x  **This child meets condition 3 only if the child was a full-time student who did not have earned income that was more than half of the child's support. Tax planning us 1040x  ***Do not use Form 8615 for this child. Tax planning us 1040x Providing Parental Information (Form 8615, lines A–C) On Form 8615, lines A and B, enter the parent's name and social security number. Tax planning us 1040x (If the parents filed a joint return, enter the name and social security number listed first on the joint return. Tax planning us 1040x ) On line C, check the box for the parent's filing status. Tax planning us 1040x See Which Parent's Return To Use at the beginning of this chapter for information on which parent's return information must be used on Form 8615. Tax planning us 1040x Parent with different tax year. Tax planning us 1040x   If the parent and the child do not have the same tax year, complete Form 8615 using the information on the parent's return for the tax year that ends in the child's tax year. Tax planning us 1040x Parent's return information not known timely. Tax planning us 1040x   If the information needed from the parent's return is not known by the time the child's return is due (usually April 15), you can file the return using estimates. Tax planning us 1040x   You can use any reasonable estimate. Tax planning us 1040x This includes using information from last year's return. Tax planning us 1040x If you use an estimated amount on Form 8615, enter “Estimated” on the line next to the amount. Tax planning us 1040x    When you get the correct information, file an amended return on Form 1040X, Amended U. Tax planning us 1040x S. Tax planning us 1040x Individual Income Tax Return. Tax planning us 1040x   Instead of using estimates, you can get an automatic 6-month extension of time to file if, by the date your return is due, you file Form 4868, Application for Automatic Extension of Time To File U. Tax planning us 1040x S. Tax planning us 1040x Individual Income Tax Return. Tax planning us 1040x Extensions are discussed in chapter 1. Tax planning us 1040x Step 1. Tax planning us 1040x Figuring the Child's Net Unearned Income (Form 8615, Part I) The first step in figuring a child's tax using Form 8615 is to figure the child's net unearned income. Tax planning us 1040x To do that, use Form 8615, Part I. Tax planning us 1040x Line 1 (unearned income). Tax planning us 1040x   If the child had no earned income, enter on this line the adjusted gross income shown on the child's return. Tax planning us 1040x Adjusted gross income is shown on Form 1040, line 38, or Form 1040A, line 22. Tax planning us 1040x Form 1040EZ cannot be used if Form 8615 must be filed. Tax planning us 1040x   If the child had earned income, figure the amount to enter on Form 8615, line 1, by using the worksheet in the instructions for the form. Tax planning us 1040x   However, if the child has: excluded any foreign earned income, deducted either a loss from self-employment, or deducted a net operating loss from another year, then use the Alternate Worksheet for Form 8615, Line 1, in Publication 929 to figure the amount to enter on Form 8615, line 1. Tax planning us 1040x Unearned income defined. Tax planning us 1040x   Unearned income is generally all income other than salaries, wages, and other amounts received as pay for work actually done. Tax planning us 1040x It includes taxable interest, dividends (including capital gain distributions), capital gains, unemployment compensation, the taxable part of social security and pension payments, and certain distributions from trusts. Tax planning us 1040x Unearned income includes amounts produced by assets the child obtained with earned income (such as interest on a savings account into which the child deposited wages). Tax planning us 1040x Nontaxable income. Tax planning us 1040x   For this purpose, unearned income includes only amounts the child must include in total income. Tax planning us 1040x Nontaxable unearned income, such as tax-exempt interest and the nontaxable part of social security and pension payments, is not included. Tax planning us 1040x Income from property received as a gift. Tax planning us 1040x   A child's unearned income includes all income produced by property belonging to the child. Tax planning us 1040x This is true even if the property was transferred to the child, regardless of when the property was transferred or purchased or who transferred it. Tax planning us 1040x   A child's unearned income includes income produced by property given as a gift to the child. Tax planning us 1040x This includes gifts to the child from grandparents or any other person and gifts made under the Uniform Gift to Minors Act. Tax planning us 1040x Example. Tax planning us 1040x Amanda Black, age 13, received the following income. Tax planning us 1040x Dividends — $800 Wages — $2,100 Taxable interest — $1,200 Tax-exempt interest — $100 Net capital gains — $100 The dividends were qualified dividends on stock given to her by her grandparents. Tax planning us 1040x Amanda's unearned income is $2,100. Tax planning us 1040x This is the total of the dividends ($800), taxable interest ($1,200), and net capital gains ($100). Tax planning us 1040x Her wages are earned (not unearned) income because they are received for work actually done. Tax planning us 1040x Her tax-exempt interest is not included because it is nontaxable. Tax planning us 1040x Trust income. Tax planning us 1040x   If a child is the beneficiary of a trust, distributions of taxable interest, dividends, capital gains, and other unearned income from the trust are unearned income to the child. Tax planning us 1040x   However, for purposes of completing Form 8615, a taxable distribution from a qualified disability trust is considered earned income, not unearned income. Tax planning us 1040x Line 2 (deductions). Tax planning us 1040x   If the child does not itemize deductions on Schedule A (Form 1040), enter $2,000 on line 2. Tax planning us 1040x   If the child does itemize deductions, enter on line 2 the larger of: $1,000 plus the portion of the child's itemized deductions on Schedule A (Form 1040), line 29, that are directly connected with the production of unearned income entered on line 1, or $2,000. Tax planning us 1040x Directly connected. Tax planning us 1040x   Itemized deductions are directly connected with the production of unearned income if they are for expenses paid to produce or collect taxable income or to manage, conserve, or maintain property held for producing income. Tax planning us 1040x These expenses include custodian fees and service charges, service fees to collect taxable interest and dividends, and certain investment counsel fees. Tax planning us 1040x   These expenses are added to certain other miscellaneous itemized deductions on Schedule A (Form 1040). Tax planning us 1040x Only the amount greater than 2% of the child's adjusted gross income can be deducted. Tax planning us 1040x See chapter 28 for more information. Tax planning us 1040x Example 1. Tax planning us 1040x Roger, age 12, has unearned income of $8,000, no other income, no adjustments to income, and itemized deductions of $300 (net of the 2% limit) that are directly connected with his unearned income. Tax planning us 1040x His adjusted gross income is $8,000, which is entered on Form 1040, line 38, and on Form 8615, line 1. Tax planning us 1040x Roger enters $2,000 on line 2 because that is more than the total of $1,000 plus his directly connected itemized deductions of $300. Tax planning us 1040x Example 2. Tax planning us 1040x Eleanor, age 8, has unearned income of $16,000 and an early withdrawal penalty of $100. Tax planning us 1040x She has no other income. Tax planning us 1040x She has itemized deductions of $1,050 (net of the 2% limit) that are directly connected with the production of her unearned income. Tax planning us 1040x Her adjusted gross income, entered on line 1, is $15,900 ($16,000 − $100). Tax planning us 1040x The amount on line 2 is $2,050. Tax planning us 1040x This is the larger of: $1,000 plus the $1,050 of directly connected itemized deductions, or $2,000. Tax planning us 1040x Line 3. Tax planning us 1040x   Subtract line 2 from line 1 and enter the result on this line. Tax planning us 1040x If zero or less, do not complete the rest of the form. Tax planning us 1040x However, you must still attach Form 8615 to the child's tax return. Tax planning us 1040x Figure the tax on the child's taxable income in the normal manner. Tax planning us 1040x Line 4 (child's taxable income). Tax planning us 1040x   Enter on line 4 the child's taxable income from Form 1040, line 43, or Form 1040A, line 27. Tax planning us 1040x   However, if the child files Form 2555 or 2555-EZ to claim the foreign earned income exclusion, housing exclusion, or housing deduction, see the Form 8615 instructions or Pub. Tax planning us 1040x 929. Tax planning us 1040x Line 5 (net unearned income). Tax planning us 1040x   A child's net unearned income cannot be more than his or her taxable income. Tax planning us 1040x Enter on Form 8615, line 5, the smaller of line 3 or line 4. Tax planning us 1040x This is the child's net unearned income. Tax planning us 1040x   If zero or less, do not complete the rest of the form. Tax planning us 1040x However, you must still attach Form 8615 to the child's tax return. Tax planning us 1040x Figure the tax on the child's taxable income in the normal manner. Tax planning us 1040x Step 2. Tax planning us 1040x Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) The next step in completing Form 8615 is to figure a tentative tax on the child's net unearned income at the parent's tax rate. Tax planning us 1040x The tentative tax at the parent's tax rate is the difference between the tax on the parent's taxable income figured with the child's net unearned income (plus the net unearned income of any other child whose Form 8615 includes the tax return information of that parent) and the tax figured without it. Tax planning us 1040x When figuring the tentative tax at the parent's tax rate on Form 8615, do not refigure any of the exclusions, deductions, or credits on the parent's return because of the child's net unearned income. Tax planning us 1040x For example, do not refigure the medical expense deduction. Tax planning us 1040x Figure the tentative tax on Form 8615, lines 6 through 13. Tax planning us 1040x Note. Tax planning us 1040x If the child or parent has any capital gains or losses, get Publication 929 for help in completing Form 8615, Part II. Tax planning us 1040x Line 6 (parent's taxable income). Tax planning us 1040x   Enter on line 6 the parent's taxable income from Form 1040, line 43, Form 1040A, line 27, or Form 1040EZ, line 6. Tax planning us 1040x   If the Foreign Earned Income Tax Worksheet (in the Form 1040 instructions) was used to figure the parent's tax, enter the amount from line 3 of that worksheet instead of the parent's taxable income. Tax planning us 1040x Line 7 (net unearned income of other children). Tax planning us 1040x   If the tax return information of the parent is also used on any other child's Form 8615, enter on line 7 the total of the amounts from line 5 of all the other children's Forms 8615. Tax planning us 1040x Do not include the amount from line 5 of the Form 8615 being completed. Tax planning us 1040x Example. Tax planning us 1040x Paul and Jane Persimmon have three children, Sharon, Jerry, and Mike, who must attach Form 8615 to their tax returns. Tax planning us 1040x The children's net unearned income amounts on line 5 of their Forms 8615 are: Sharon — $800 Jerry — $600 Mike — $1,000 Line 7 of Sharon's Form 8615 will show $1,600, the total of the amounts on line 5 of Jerry's and Mike's Forms 8615. Tax planning us 1040x Line 7 of Jerry's Form 8615 will show $1,800 ($800 + $1,000). Tax planning us 1040x Line 7 of Mike's Form 8615 will show $1,400 ($800 + $600). Tax planning us 1040x Other children's information not available. Tax planning us 1040x   If the net unearned income of the other children is not available when the return is due, either file the return using estimates or get an extension of time to file. Tax planning us 1040x See Parent's return information not known timely , earlier. Tax planning us 1040x Line 11 (tentative tax). Tax planning us 1040x   Subtract line 10 from line 9 and enter the result on this line. Tax planning us 1040x This is the tentative tax. Tax planning us 1040x   If line 7 is blank, skip lines 12a and 12b and enter the amount from line 11 on line 13. Tax planning us 1040x Also skip the discussion for lines 12a and 12b that follows. Tax planning us 1040x Lines 12a and 12b (dividing the tentative tax). Tax planning us 1040x   If an amount is entered on line 7, divide the tentative tax shown on line 11 among the children according to each child's share of the total net unearned income. Tax planning us 1040x This is done on lines 12a, 12b, and 13. Tax planning us 1040x Add the amount on line 7 to the amount on line 5 and enter the total on line 12a. Tax planning us 1040x Divide the amount on line 5 by the amount on line 12a and enter the result, as a decimal, on line 12b. Tax planning us 1040x Example. Tax planning us 1040x In the earlier example under Line 7 (net unearned income of other children), Sharon's Form 8615 shows $1,600 on line 7. Tax planning us 1040x The amount entered on line 12a is $2,400, the total of the amounts on lines 5 and 7 ($800 + $1,600). Tax planning us 1040x The decimal on line 12b is  . Tax planning us 1040x 333, figured as follows and rounded to three places. Tax planning us 1040x   $800 = . Tax planning us 1040x 333     $2,400   Step 3. Tax planning us 1040x Figuring the Child's Tax (Form 8615, Part III) The final step in figuring a child's tax using Form 8615 is to determine the larger of: The total of: The child's share of the tentative tax based on the parent's tax rate, plus The tax on the child's taxable income in excess of net unearned income, figured at the child's tax rate, or The tax on the child's taxable income, figured at the child's tax rate. Tax planning us 1040x This is the child's tax. Tax planning us 1040x It is figured on Form 8615, lines 14 through 18. Tax planning us 1040x Alternative minimum tax. Tax planning us 1040x   A child may be subject to alternative minimum tax (AMT) if he or she has certain items given preferential treatment under the tax law. Tax planning us 1040x See Alternative Minimum Tax (AMT) in chapter 30. Tax planning us 1040x    For more information on who is liable for AMT and how to figure it, see Form 6251, Alternative Minimum Tax—Individuals. Tax planning us 1040x For information on special limits that apply to a child who files Form 6251, see Certain Children Under Age 24 in the Instructions for Form 6251. Tax planning us 1040x Prev  Up  Next   Home   More Online Publications