kiddie tax 2019 acct3327 - YouTube

okay I want to talk a little bit about kiddie tax for some reason kiddie tax is

a often area that students team that seem to stumble in and I'm saying kiddie

tax and gotten some exams where I see kitty-kitty tax no that's not right

probably just the way I'm saying it so it's kiddie tax it's because it's for

children kids a kiddie tax was implemented because what was happening

was savvy tax payers were saying hey if I put all of this income in my child's

name they would be paying at a much lower rate than I would be and so they

would get such a huge tax break right so the IRS countered that move and said no

there's such a thing as kiddie tax meaning that if your child earns

investment income interest type of income dividends things like that stock

unearned income so that's basically they're not out there manually you know

manual labor in order to earn that income its investment income so that's

called unearned income and so if your child has large amounts of unearned

income they are going to tax it at a higher rate it won't be taxed at the

child's rate and that like I said was a move in order to prevent people moving

down income putting the stock in their child's name in order to pay taxes on

the income at a much lower rate okay so how does kiddie tax work let's say we

have a child her name is Rosie okay so it needs to be a child that dependent

under 17 she has what's called unearned income

meaning investment income so we're gonna say an interest income

she has interest income of $3,000 okay so how is kiddie tax gonna come into

play here on this one it goes through it in your textbook pretty well I kind of

wanted to break it out so you can see it in two different ways it'll kind of

click in maybe that way but okay so we have her investment income and we get a

deduction of $2,100 just right off the bat we don't have to we just always get

$2,100 and then what we get left over after we deduct this is the net unearned

income it's taxed at the higher rate so if I asked you what's taxed at the

kiddie tax higher rate you're always going to be telling me it's the net

unearned income whatever is above this $2,100 okay so let's talk about what

that $2,100 is is there's an exempt amount so it's kind of like a standard

deduction that no matter how much your child earns they're always going to get

this $1,050 that's not taxable okay so that's an exempt amount then the next

$1,050 is taxed at the child's rate which is usually at a lower rate they're

not going to be if in the higher tax brackets normally so they get taxed at

that rate but that's and that's as much as will be taxed at the child's

rate ever the rest is taxed at the trust and estate

rates which are given in your the rate schedules you can see what those are

they're generally higher and that is going to be taxed at the higher rate

that prevents pushing income down to your children okay and being taxed at

that lower rate okay so let's look at it this way a little bit just it's the same

exact calculations but it's just turned a different way so we have the three

thousand dollars of interest income we get the exempt amount the $1,050 then we

get taxable income this is the total amount that's taxed so you'll see the

difference so we finally asking you what's this the taxable amount it's it's

after the exempt amount but this 1950 is broken up in two

different it's taxed at two different rates right so the 1050 it will be taxed

at the Child's rate and anything above that's going to be taxed at the trust and estate

rates so it's broken out that way so these are two of the exact same

set of facts but it's just looked at it a little bit differently so good luck

with Kiddie tax