 Dear Tax Talk:
My daughter will turn 13 on Nov. 1. She has always
received money for her birthdays, Christmas, etc.
I had invested her money (about $3,600) in a nine-month
CD that has now matured. I put the CD in her name
and I am the custodian. What happens to the interest
that she earned? Do I have to claim that on my
tax returns? The check came without her name on
it at all ... it just had my name, as custodian,
on it.
-- Chrissie
 Dear
Chrissie,
You can only file a joint return with your spouse; you can't file jointly with your children. The income of a child belongs to that child whether earned through work or unearned through investment. A child who is your dependent may have to file a return. This depends on the amount of the child's earned income, unearned income and gross income.
If a dependent child must file an
income tax return, but cannot file it because
of his or her age, a parent, guardian or other legally
responsible person must file it for the child.
If the child cannot sign the return, the parent
or guardian must sign the child's name followed
by the words: "By (your signature), parent for
minor child."
Amounts a child earns by performing services are his or her gross income. This is true even if under local law the child's parents have the right to the earnings and may actually have received them. If the child does not pay the tax due on this income, the parent is liable for the tax.
A child's investment income may be subject to tax at the parent's
tax rate if the child is under age 18 (previously
under age 14) at the end of the year. The amount
of taxable investment income the child can have
without it being subject to tax at the parent's
rate was $1,700 for 2006. In 2006, a child could
have unearned income of up to $850 without being
required to file a separate return or being taxed
at the parent’s marginal rate. In other words,
if your daughter earned less than $850 in interest
in 2007, there is no requirement that you file
a return for her, nor would you include her interest
income on your tax return.
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