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Ask the tax adviser
By George Saenz •
Bankrate.com
 June
30, 2000 -- When children have to file a tax return and when a tax
deduction can be taken for preschool or kindergarten.
Children's tax filing
Dear Tax Talk:
I have an 8-month-old daughter. At the end of 1999, I opened a custodian
account under her name and received interest on the money in the
account. It amounted to less than $2. Do I need to file a tax return
for my daughter? Or should I report the tax under my return?
Thanks
Charles
Dear Charles:
For $2 either way, I don't think you should have to worry. However,
since we try to gear our answers for other users, I'm using your
question for general interest.
The good news is that a parent does not have
to pick up as income the income of their children, regardless of
their age. The bad news is that a dependent child may have to file
a tax
return when his or her income exceeds a certain threshold that
is indexed annually for inflation. The threshold in 1999 was $700
in unearned income (such as dividends and interest). Your daughter
probably has a few years to go before she gets there.
If a child is under age 14 at the end of the
year, certain rules apply that treats the unearned income
of the child as taxable at the parent's marginal tax rate. This
was designed to prevent parents from shifting income to a child's
lower tax rate. In this case, to avoid the need for the child to
file a separate tax return, the parent, in certain cases, can elect
on Form
8814 to pay the child's tax on their return. These cases are
limited as described in the form's instructions.
Tax breaks for kindergarten
Dear Tax Talk:
Is there any way to take a deduction for tuition for a child attending
preschool or kindergarten?
Robert
Dear Robert:
If I told you I could get you a tax credit instead of a deduction,
would I still be making your day? Many parents use preschool and
kindergarten as a way of child care that allows the parents to work
and the children to be gainfully occupied. If one of the purposes
of the schooling is to allow the parents to work and the cost of
the schooling cannot be separated from the cost of the care, then
the amounts paid qualify for the child
care credit on Form
2441.
If you are married, then the amount of schooling
that qualifies for the credit is limited to the lesser of the cost
or the net earned income of either spouse. In any case, only up
to $2,400 in child-care expenses per child qualifies for the credit
and only up to $4,800 for two or more children.
If one spouse attends school in lieu of working,
that spouse is deemed to have earned income of $200 (or $400 for
more than one child) per month while attending school. Do not include
the cost of schooling of a child in the first grade or above. The
tax credit is a percentage of the cost of the schooling that decreases
as the parent's adjusted gross income increases. In most cases,
it is equal to 20 percent of the costs (up to $480 for one child
or $960 for more than one child).
-- Posted June 30,
2000
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