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1040 Short Form

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1040 Short Form

1040 short form 5. 1040 short form   Soil and Water Conservation Expenses Table of Contents Introduction Topics - This chapter discusses: Business of Farming Plan Certification Conservation ExpensesWater well. 1040 short form Assessment by Conservation DistrictAssessment for Depreciable Property 25% Limit on DeductionNet operating loss. 1040 short form When to Deduct or Capitalize Sale of a Farm Introduction If you are in the business of farming, you can choose to deduct certain expenses for: Soil or water conservation, Prevention of erosion of land used in farming, or Endangered species recovery. 1040 short form Otherwise, these are capital expenses that must be added to the basis of the land. 1040 short form (See chapter 6 for information on determining basis. 1040 short form ) Conservation expenses for land in a foreign country do not qualify for this special treatment. 1040 short form The deduction for conservation expenses cannot be more than 25% of your gross income from farming. 1040 short form See 25% Limit on Deduction , later. 1040 short form Although some expenses are not deductible as soil and water conservation expenses, they may be deductible as ordinary and necessary farm expenses. 1040 short form These include interest and taxes, the cost of periodically clearing brush from productive land, the regular removal of sediment from a drainage ditch, and expenses paid or incurred primarily to produce an agricultural crop that may also conserve soil. 1040 short form You must include in income most government payments for approved conservation practices. 1040 short form However, you can exclude some payments you receive under certain cost-sharing conservation programs. 1040 short form For more information, see Agricultural Program Payments in chapter 3. 1040 short form To get the full deduction to which you are entitled, you should maintain your records to clearly distinguish between your ordinary and necessary farm business expenses and your soil and water conservation expenses. 1040 short form Topics - This chapter discusses: Business of farming Plan certification Conservation expenses Assessment by conservation district 25% limit on deduction When to deduct or capitalize Sale of a farm Business of Farming For purposes of soil and water conservation expenses, you are in the business of farming if you cultivate, operate, or manage a farm for profit, either as an owner or a tenant. 1040 short form You are not in the business of farming if you cultivate or operate a farm for recreation or pleasure, rather than for profit. 1040 short form You are not farming if you are engaged only in forestry or the growing of timber. 1040 short form Farm defined. 1040 short form   A farm includes livestock, dairy, poultry, fish, fruit, and truck farms. 1040 short form It also includes plantations, ranches, ranges, and orchards. 1040 short form A fish farm is an area where fish and other marine animals are grown or raised and artificially fed, protected, etc. 1040 short form It does not include an area where they are merely caught or harvested. 1040 short form A plant nursery is a farm for purposes of deducting soil and water conservation expenses. 1040 short form Farm rental. 1040 short form   If you own a farm and receive farm rental payments based on farm production, either in cash or crop shares, you are in the business of farming. 1040 short form If you get cash rental for a farm you own that is not used in farm production, you cannot deduct soil and water conservation expenses for that farm. 1040 short form   If you receive a fixed rental payment that is not based on farm production, you are in the business of farming only if you materially participate in operating or managing the farm. 1040 short form Example. 1040 short form You own a farm in Iowa and live in California. 1040 short form You rent the farm for $175 in cash per acre and do not materially participate in producing or managing production of the crops grown on the farm. 1040 short form You cannot deduct your soil conservation expenses for this farm. 1040 short form You must capitalize the expenses and add them to the basis of the land. 1040 short form     For more information, see Material participation for landlords under Landlord Participation in Farming in chapter 12. 1040 short form Plan Certification You can deduct soil and water conservation expenses only if they are consistent with a plan approved by the Natural Resources Conservation Service (NRCS) of the Department of Agriculture. 1040 short form If no such plan exists, the expenses must be consistent with a soil conservation plan of a comparable state agency. 1040 short form Keep a copy of the plan with your books and records to support your deductions. 1040 short form Conservation plan. 1040 short form   A conservation plan includes the farming conservation practices approved for the area where your farmland is located. 1040 short form There are three types of approved plans. 1040 short form NRCS individual site plans. 1040 short form These plans are issued individually to farmers who request assistance from NRCS to develop a conservation plan designed specifically for their farmland. 1040 short form NRCS county plans. 1040 short form These plans include a listing of farm conservation practices approved for the county where the farmland is located. 1040 short form You can deduct expenses for conservation practices not included on the NRCS county plans only if the practice is a part of an individual site plan. 1040 short form Comparable state agency plans. 1040 short form These plans are approved by state agencies and can be approved individual site plans or county plans. 1040 short form   A list of NRCS conservation programs is available at www. 1040 short form nrcs. 1040 short form usda. 1040 short form gov/programs. 1040 short form Individual site plans can be obtained from NRCS offices and the comparable state agencies. 1040 short form Conservation Expenses You can deduct conservation expenses only for land you or your tenant are using, or have used in the past, for farming. 1040 short form These expenses include, but are not limited to, the following. 1040 short form The treatment or movement of earth, such as: Leveling, Conditioning, Grading, Terracing, Contour furrowing, and Restoration of soil fertility. 1040 short form The construction, control, and protection of: Diversion channels, Drainage ditches, Irrigation ditches, Earthen dams, and Watercourses, outlets, and ponds. 1040 short form The eradication of brush. 1040 short form The planting of windbreaks. 1040 short form You cannot deduct expenses to drain or fill wetlands, or to prepare land for center pivot irrigation systems, as soil and water conservation expenses. 1040 short form These expenses are added to the basis of the land. 1040 short form If you choose to deduct soil and water conservation expenses, you cannot exclude from gross income any cost-sharing payments you receive for those expenses. 1040 short form See chapter 3 for information about payments eligible for the cost-sharing exclusion. 1040 short form New farm or farmland. 1040 short form   If you acquire a new farm or new farmland from someone who was using it in farming immediately before you acquired the land, soil and water conservation expenses you incur on it will be treated as made on land used in farming at the time the expenses were paid or incurred. 1040 short form You can deduct soil and water conservation expenses for this land if your use of it is substantially a continuation of its use in farming. 1040 short form The new farming activity does not have to be the same as the old farming activity. 1040 short form For example, if you buy land that was used for grazing cattle and then prepare it for use as an apple orchard, you can deduct your conservation expenses. 1040 short form Land not used for farming. 1040 short form   If your conservation expenses benefit both land that does not qualify as land used for farming and land that does qualify, you must allocate the expenses between the two types of land. 1040 short form For example, if the expenses benefit 200 acres of your land, but only 120 acres of this land are used for farming, then you can deduct 60% (120 ÷ 200) of the expenses. 1040 short form You can use another method to allocate these expenses if you can clearly show that your method is more reasonable. 1040 short form Depreciable conservation assets. 1040 short form   You generally cannot deduct your expenses for depreciable conservation assets. 1040 short form However, you can deduct certain amounts you pay or incur for an assessment for depreciable property that a soil and water conservation or drainage district levies against your farm. 1040 short form See Assessment for Depreciable Property , later. 1040 short form   You must capitalize expenses to buy, build, install, or improve depreciable structures or facilities. 1040 short form These expenses include those for materials, supplies, wages, fuel, hauling, and moving dirt when making structures such as tanks, reservoirs, pipes, culverts, canals, dams, wells, or pumps composed of masonry, concrete, tile, metal, or wood. 1040 short form You recover your capital investment through annual allowances for depreciation. 1040 short form   You can deduct soil and water conservation expenses for nondepreciable earthen items. 1040 short form Nondepreciable earthen items include certain dams, ponds, and terraces described under Property Having a Determinable Useful Life in chapter 7. 1040 short form Water well. 1040 short form   You cannot deduct the cost of drilling a water well for irrigation and other agricultural purposes as a soil and water conservation expense. 1040 short form It is a capital expense. 1040 short form You recover your cost through depreciation. 1040 short form You also must capitalize your cost for drilling a test hole. 1040 short form If the test hole produces no water and you continue drilling, the cost of the test hole is added to the cost of the producing well. 1040 short form You can recover the total cost through depreciation deductions. 1040 short form   If a test hole, dry hole, or dried-up well (resulting from prolonged lack of rain, for instance) is abandoned, you can deduct your unrecovered cost in the year of abandonment. 1040 short form Abandonment means that all economic benefits from the well are terminated. 1040 short form For example, filling or sealing a well excavation or casing so that all economic benefits from the well are terminated constitutes an abandonment. 1040 short form Endangered species recovery expenses. 1040 short form   If you are in the business of farming and meet other specific requirements, you can choose to deduct the conservation expenses discussed earlier as endangered species recovery expenses. 1040 short form Otherwise, these are capital expenses that must be added to the basis of the land. 1040 short form   The expenses must be paid or incurred for the purpose of achieving site-specific management actions recommended in a recovery plan approved under section 4(f) of the Endangered Species Act of 1973. 1040 short form See Internal Revenue Code section 175 for more information. 1040 short form Assessment by Conservation District In some localities, a soil or water conservation or drainage district incurs expenses for soil or water conservation and levies an assessment against the farmers who benefit from the expenses. 1040 short form You can deduct as a conservation expense amounts you pay or incur for the part of an assessment that: Covers expenses you could deduct if you had paid them directly, or Covers expenses for depreciable property used in the district's business. 1040 short form Assessment for Depreciable Property You generally can deduct as a conservation expense amounts you pay or incur for the part of a conservation or drainage district assessment that covers expenses for depreciable property. 1040 short form This includes items such as pumps, locks, concrete structures (including dams and weir gates), draglines, and similar equipment. 1040 short form The depreciable property must be used in the district's soil and water conservation activities. 1040 short form However, the following limits apply to these assessments. 1040 short form The total assessment limit. 1040 short form The yearly assessment limit. 1040 short form After you apply these limits, the amount you can deduct is added to your other conservation expenses for the year. 1040 short form The total for these expenses is then subject to the 25% of gross income from farming limit on the deduction, discussed later. 1040 short form See Table 5-1 for a brief summary of these limits. 1040 short form Table 5-1. 1040 short form Limits on Deducting an Assessment by a Conservation District for Depreciable Property Total Limit on Deduction for Assessment for Depreciable Property Yearly Limit on Deduction for Assessment for Depreciable Property Yearly Limit for All Conservation Expenses 10% of: $500 + 10% of: 25% of: Total assessment against all members of the district for the property. 1040 short form Your deductible share of the cost to the district for the property. 1040 short form Your gross income from farming. 1040 short form No one taxpayer can deduct more than 10% of the total assessment. 1040 short form Any amount over 10% is a capital expense and is added to the basis of your land. 1040 short form If an assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. 1040 short form If the amount you pay or incur for any year is more than the limit, you can deduct for that year only 10% of your deductible share of the cost. 1040 short form You can deduct the remainder in equal amounts over the next 9 tax years. 1040 short form Limit for all conservation expenses, including assessments for depreciable property. 1040 short form Amounts greater than 25% can be carried to the following year and added to that year's expenses. 1040 short form The total is then subject to the 25% of gross income from farming limit in that year. 1040 short form To ensure your deduction is within the deduction limits, keep records to show the following. 1040 short form The total assessment against all members of the district for the depreciable property. 1040 short form Your deductible share of the cost to the district for the depreciable property. 1040 short form Your gross income from farming. 1040 short form Total assessment limit. 1040 short form   You cannot deduct more than 10% of the total amount assessed to all members of the conservation or drainage district for the depreciable property. 1040 short form This applies whether you pay the assessment in one payment or in installments. 1040 short form If your assessment is more than 10% of the total amount assessed, both the following rules apply. 1040 short form The amount over 10% is a capital expense and is added to the basis of your land. 1040 short form If the assessment is paid in installments, each payment must be prorated between the conservation expense and the capital expense. 1040 short form Yearly assessment limit. 1040 short form   The maximum amount you can deduct in any one year is the total of 10% of your deductible share of the cost as explained earlier, plus $500. 1040 short form If the amount you pay or incur is equal to or less than the maximum amount, you can deduct it in the year it is paid or incurred. 1040 short form If the amount you pay or incur is more, you can deduct in that year only 10% of your deductible share of the cost. 1040 short form You can deduct the remainder in equal amounts over the next 9 tax years. 1040 short form Your total conservation expense deduction for each year is also subject to the 25% of gross income from farming limit on the deduction, discussed later. 1040 short form Example 1. 1040 short form This year, the soil conservation district levies and you pay an assessment of $2,400 against your farm. 1040 short form Of the assessment, $1,500 is for digging drainage ditches. 1040 short form You can deduct this part as a soil or conservation expense as if you had paid it directly. 1040 short form The remaining $900 is for depreciable equipment to be used in the district's irrigation activities. 1040 short form The total amount assessed by the district against all its members for the depreciable equipment is $7,000. 1040 short form The total amount you can deduct for the depreciable equipment is limited to 10% of the total amount assessed by the district against all its members for depreciable equipment, or $700. 1040 short form The $200 excess ($900 − $700) is a capital expense you must add to the basis of your farm. 1040 short form To figure the maximum amount you can deduct for the depreciable equipment this year, multiply your deductible share of the total assessment ($700) by 10%. 1040 short form Add $500 to the result for a total of $570. 1040 short form Your deductible share, $700, is greater than the maximum amount deductible in one year, so you can deduct only $70 of the amount you paid or incurred for depreciable property this year (10% of $700). 1040 short form You can deduct the balance at the rate of $70 a year over the next 9 years. 1040 short form You add $70 to the $1,500 portion of the assessment for drainage ditches. 1040 short form You can deduct $1,570 of the $2,400 assessment as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed later. 1040 short form Example 2. 1040 short form Assume the same facts in Example 1 except that $1,850 of the $2,400 assessment is for digging drainage ditches and $550 is for depreciable equipment. 1040 short form The total amount assessed by the district against all its members for depreciable equipment is $5,500. 1040 short form The total amount you can deduct for the depreciable equipment is limited to 10% of this amount, or $550. 1040 short form The maximum amount you can deduct this year for the depreciable equipment is $555 (10% of your deductible share of the total assessment, $55, plus $500). 1040 short form Since your deductible share is less than the maximum amount deductible in one year, you can deduct the entire $550 this year. 1040 short form You can deduct the entire assessment, $2,400, as a soil and water conservation expense this year, subject to the 25% of gross income from farming limit on the deduction, discussed below. 1040 short form Sale or other disposal of land during 9-year period. 1040 short form   If you dispose of the land during the 9-year period for deducting conservation expenses subject to the yearly limit, any amounts you have not yet deducted because of this limit are added to the basis of the property. 1040 short form Death of farmer during 9-year period. 1040 short form   If a farmer dies during the 9-year period, any remaining amounts not yet deducted are deducted in the year of death. 1040 short form 25% Limit on Deduction The total deduction for conservation expenses in any tax year is limited to 25% of your gross income from farming for the year. 1040 short form Gross income from farming. 1040 short form   Gross income from farming is the income you derive in the business of farming from the production of crops, fish, fruits, other agricultural products, or livestock. 1040 short form Gains from sales of draft, breeding, or dairy livestock are included. 1040 short form Gains from sales of assets such as farm machinery, or from the disposition of land, are not included. 1040 short form Carryover of deduction. 1040 short form   If your deductible conservation expenses in any year are more than 25% of your gross income from farming for that year, you can carry the unused deduction over to later years. 1040 short form However, the deduction in any later year is limited to 25% of the gross income from farming for that year as well. 1040 short form Example. 1040 short form In 2012, you have gross income of $32,000 from two farms. 1040 short form During the year, you incurred $10,000 of deductible soil and water conservation expenses for one of the farms. 1040 short form However, your deduction is limited to 25% of $32,000, or $8,000. 1040 short form The $2,000 excess ($10,000 − $8,000) is carried over to 2013 and added to deductible soil and water conservation expenses made in that year. 1040 short form The total of the 2012 carryover plus 2013 expenses is deductible in 2013, subject to the limit of 25% of your gross income from farming in 2013. 1040 short form Any expenses over the limit in that year are carried to 2014 and later years. 1040 short form Net operating loss. 1040 short form   The deduction for soil and water conservation expenses, after applying the 25% limit, is included when figuring a net operating loss (NOL) for the year. 1040 short form If the NOL is carried to another year, the soil and water conservation deduction included in the NOL is not subject to the 25% limit in the year to which it is carried. 1040 short form When to Deduct or Capitalize If you choose to deduct soil and water conservation expenses, you must deduct the total allowable amount on your tax return for the first year you pay or incur these expenses. 1040 short form If you do not choose to deduct the expenses, you must capitalize them. 1040 short form Change of method. 1040 short form   If you want to change your method for the treatment of soil and water conservation expenses, or you want to treat the expenses for a particular project or a single farm in a different manner, you must get the approval of the IRS. 1040 short form To get this approval, submit a written request by the due date of your return for the first tax year you want the new method to apply. 1040 short form You or your authorized representative must sign the request. 1040 short form   The request must include the following information. 1040 short form Your name and address. 1040 short form The first tax year the method or change of method is to apply. 1040 short form Whether the method or change of method applies to all your soil and water conservation expenses or only to those for a particular project or farm. 1040 short form If the method or change of method does not apply to all your expenses, identify the project or farm to which the expenses apply. 1040 short form The total expenses you paid or incurred in the first tax year the method or change of method is to apply. 1040 short form A statement that you will account separately in your books for the expenses to which this method or change of method relates. 1040 short form Send your request to the following  address. 1040 short form  Department of the Treasury Internal Revenue Service Center Cincinnati, OH 45999  For more information, see Change in  Accounting Method in chapter 2. 1040 short form Sale of a Farm If you sell your farm, you cannot adjust the basis of the land at the time of the sale for any unused carryover of soil and water conservation expenses (except for deductions of assessments for depreciable property, discussed earlier). 1040 short form However, if you acquire another farm and return to the business of farming, you can start taking deductions again for the unused carryovers. 1040 short form Gain on sale of farmland. 1040 short form   If you held the land 5 years or less before you sold it, gain on the sale of the land is treated as ordinary income up to the amount you previously deducted for soil and water conservation expenses. 1040 short form If you held the land less than 10 but more than 5 years, the gain is treated as ordinary income up to a specified percentage of the previous deductions. 1040 short form See Section 1252 property under Other Gains in chapter 9. 1040 short form Prev  Up  Next   Home   More Online 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The 1040 Short Form

1040 short form 31. 1040 short form   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. 1040 short form Figuring the Child's Net Unearned Income (Form 8615, Part I) Step 2. 1040 short form Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) Step 3. 1040 short form Figuring the Child's Tax (Form 8615, Part III) What's New Net Investment Income Tax. 1040 short form . 1040 short form  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). 1040 short form NIIT is a 3. 1040 short form 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. 1040 short form Use Form 8960, Net Investment Income Tax, to figure this tax. 1040 short form For more information on NIIT, go to www. 1040 short form irs. 1040 short form gov and enter “Net Investment Income Tax” in the search box. 1040 short form Introduction This chapter discusses the following two rules that may affect the tax on unearned income of certain children. 1040 short form 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. 1040 short form (See Parent's Election To Report Child's Interest and Dividends , later. 1040 short form ) 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. 1040 short form (See Tax for Certain Children Who Have Unearned Income , later. 1040 short form ) For these rules, the term “child” includes a legally adopted child and a stepchild. 1040 short form These rules apply whether or not the child is a dependent. 1040 short form 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. 1040 short form 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 . 1040 short form 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. 1040 short form Only the parent whose tax return is used can make the election described under Parent's Election To Report Child's Interest and Dividends . 1040 short form Parents are married. 1040 short form   If the child's parents file separate returns, use the return of the parent with the greater taxable income. 1040 short form Parents not living together. 1040 short form   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. 1040 short form If the custodial parent is not considered unmarried, use the return of the parent with the greater taxable income. 1040 short form   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. 1040 short form Parents are divorced. 1040 short form   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. 1040 short form Custodial parent remarried. 1040 short form   If the custodial parent has remarried, the stepparent (rather than the noncustodial parent) is treated as the child's other parent. 1040 short form Therefore, if the custodial parent and the stepparent file a joint return, use that joint return. 1040 short form Do not use the return of the noncustodial parent. 1040 short form   If the custodial parent and the stepparent are married, but file separate returns, use the return of the one with the greater taxable income. 1040 short form If the custodial parent and the stepparent are married but not living together, the earlier discussion under Parents not living together applies. 1040 short form Parents never married. 1040 short form   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. 1040 short form If the parents did not live together all year, the rules explained earlier under Parents are divorced apply. 1040 short form Widowed parent remarried. 1040 short form   If a widow or widower remarries, the new spouse is treated as the child's other parent. 1040 short form The rules explained earlier under Custodial parent remarried apply. 1040 short form 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. 1040 short form If you do, your child will not have to file a return. 1040 short form You can make this election only if all the following conditions are met. 1040 short form Your child was under age 19 (or under age 24 if a full-time student) at the end of the year. 1040 short form Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends). 1040 short form The child's gross income was less than $10,000. 1040 short form The child is required to file a return unless you make this election. 1040 short form The child does not file a joint return for the year. 1040 short form 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. 1040 short form No federal income tax was taken out of your child's income under the backup withholding rules. 1040 short form You are the parent whose return must be used when applying the special tax rules for children. 1040 short form (See Which Parent's Return To Use , earlier. 1040 short form ) These conditions are also shown in Figure 31-A. 1040 short form Certain January 1 birthdays. 1040 short form   A child born on January 1, 1995, is considered to be age 19 at the end of 2013. 1040 short form You cannot make this election for such a child unless the child was a full-time student. 1040 short form   A child born on January 1, 1990, is considered to be age 24 at the end of 2013. 1040 short form You cannot make this election for such a child. 1040 short form Full-time student. 1040 short form   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. 1040 short form A school includes a technical, trade, or mechanical school. 1040 short form It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. 1040 short form How to make the election. 1040 short form   Make the election by attaching Form 8814 to your Form 1040. 1040 short form (If you make this election, you cannot file Form 1040A or Form 1040EZ. 1040 short form ) Attach a separate Form 8814 for each child for whom you make the election. 1040 short form You can make the election for one or more children and not for others. 1040 short form Effect of Making the Election The federal income tax on your child's income may be more if you make the Form 8814 election. 1040 short form Rate may be higher. 1040 short form   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. 1040 short form This is because the tax rate on the child's income between $1,000 and $2,000 is 10% if you make this election. 1040 short form 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. 1040 short form Deductions you cannot take. 1040 short form   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. 1040 short form The additional standard deduction if the child is blind. 1040 short form The deduction for a penalty on an early withdrawal of your child's savings. 1040 short form Itemized deductions (such as your child's investment expenses or charitable contributions). 1040 short form Reduced deductions or credits. 1040 short form   If you use Form 8814, your increased adjusted gross income may reduce certain deductions or credits on your return including the following. 1040 short form Deduction for contributions to a traditional individual retirement arrangement (IRA). 1040 short form Deduction for student loan interest. 1040 short form Itemized deductions for medical expenses, casualty and theft losses, and certain miscellaneous expenses. 1040 short form Credit for child and dependent care expenses. 1040 short form Child tax credit. 1040 short form Education tax credits. 1040 short form Earned income credit. 1040 short form Penalty for underpayment of estimated tax. 1040 short form   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. 1040 short form 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. 1040 short form See chapter 4 for more information. 1040 short form Figuring Child's Income Use Form 8814, Part I, to figure your child's interest and dividend income to report on your return. 1040 short form Only the amount over $2,000 is added to your income. 1040 short form The amount over $2,000 is shown on Form 8814, line 6. 1040 short form Unless the child's income includes qualified dividends or capital gain distributions (discussed next), the same amount is shown on Form 8814, line 12. 1040 short form Include the amount from Form 8814, line 12, on Form 1040, line 21. 1040 short form Enter “Form 8814” on the dotted line next to line 21. 1040 short form 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. 1040 short form Capital gain distributions and qualified dividends. 1040 short form   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. 1040 short form If your child's dividend income included any qualified dividends, see Qualified dividends under Figuring Child's Income in Publication 929, Part 2. 1040 short form 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. 1040 short form This tax is added to the tax figured on your income. 1040 short form This additional tax is the smaller of: 10% × (your child's gross income − $1,000), or $100. 1040 short form Include the amount from line 15 of all your Forms 8814 in the total on Form 1040, line 44. 1040 short form Check box a on Form 1040, line 44. 1040 short form Figure 31-A. 1040 short form Can You Include Your Child's Income On Your Tax Return? Please click here for the text description of the image. 1040 short form Figure 31–A. 1040 short form 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. 1040 short form 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. 1040 short form Attach the completed form to the child's Form 1040 or Form 1040A. 1040 short form When Form 8615 must be filed. 1040 short form   Form 8615 must be filed for a child if all of the following statements are true. 1040 short form The child's investment income was more than $2,000. 1040 short form The child is required to file a return for 2013. 1040 short form 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. 1040 short form At least one of the child's parents was alive at the end of 2013. 1040 short form The child does not file a joint return for 2013. 1040 short form These conditions are also shown in  Figure 31-B. 1040 short form Earned income. 1040 short form   Earned income includes salaries, wages, tips, and other payments received for personal services performed. 1040 short form It does not include unearned income as defined later in this chapter. 1040 short form Support. 1040 short form   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. 1040 short form To figure your child's support, count support provided by you, your child, and others. 1040 short form However, a scholarship received by your child is not considered support if your child is a full-time student. 1040 short form See chapter 3 for details about support. 1040 short form Certain January 1 birthdays. 1040 short form   Use the following chart to determine whether certain children with January 1 birthdays meet condition 3 under When Form 8615 must be filed. 1040 short form Figure 31-B. 1040 short form Do You Have To Use Form 8615 To Figure Your Child's Tax? Please click here for the text description of the image. 1040 short form Figure 31-B. 1040 short form Do You Have To Use Form 8615 To Figure Your Child's Tax?    IF a child was born on. 1040 short form . 1040 short form . 1040 short form THEN, at the end of 2013, the child is considered to be. 1040 short form . 1040 short form . 1040 short form January 1, 1996 18* January 1, 1995 19** January 1, 1990 24*** *This child is not under age 18. 1040 short form The child meets condition 3 only if the child did not have earned income that was more than half of the child's support. 1040 short form  **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. 1040 short form  ***Do not use Form 8615 for this child. 1040 short form Providing Parental Information (Form 8615, lines A–C) On Form 8615, lines A and B, enter the parent's name and social security number. 1040 short form (If the parents filed a joint return, enter the name and social security number listed first on the joint return. 1040 short form ) On line C, check the box for the parent's filing status. 1040 short form 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. 1040 short form Parent with different tax year. 1040 short form   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. 1040 short form Parent's return information not known timely. 1040 short form   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. 1040 short form   You can use any reasonable estimate. 1040 short form This includes using information from last year's return. 1040 short form If you use an estimated amount on Form 8615, enter “Estimated” on the line next to the amount. 1040 short form    When you get the correct information, file an amended return on Form 1040X, Amended U. 1040 short form S. 1040 short form Individual Income Tax Return. 1040 short form   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. 1040 short form S. 1040 short form Individual Income Tax Return. 1040 short form Extensions are discussed in chapter 1. 1040 short form Step 1. 1040 short form 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. 1040 short form To do that, use Form 8615, Part I. 1040 short form Line 1 (unearned income). 1040 short form   If the child had no earned income, enter on this line the adjusted gross income shown on the child's return. 1040 short form Adjusted gross income is shown on Form 1040, line 38, or Form 1040A, line 22. 1040 short form Form 1040EZ cannot be used if Form 8615 must be filed. 1040 short form   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. 1040 short form   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. 1040 short form Unearned income defined. 1040 short form   Unearned income is generally all income other than salaries, wages, and other amounts received as pay for work actually done. 1040 short form 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. 1040 short form 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). 1040 short form Nontaxable income. 1040 short form   For this purpose, unearned income includes only amounts the child must include in total income. 1040 short form Nontaxable unearned income, such as tax-exempt interest and the nontaxable part of social security and pension payments, is not included. 1040 short form Income from property received as a gift. 1040 short form   A child's unearned income includes all income produced by property belonging to the child. 1040 short form 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. 1040 short form   A child's unearned income includes income produced by property given as a gift to the child. 1040 short form This includes gifts to the child from grandparents or any other person and gifts made under the Uniform Gift to Minors Act. 1040 short form Example. 1040 short form Amanda Black, age 13, received the following income. 1040 short form 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. 1040 short form Amanda's unearned income is $2,100. 1040 short form This is the total of the dividends ($800), taxable interest ($1,200), and net capital gains ($100). 1040 short form Her wages are earned (not unearned) income because they are received for work actually done. 1040 short form Her tax-exempt interest is not included because it is nontaxable. 1040 short form Trust income. 1040 short form   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. 1040 short form   However, for purposes of completing Form 8615, a taxable distribution from a qualified disability trust is considered earned income, not unearned income. 1040 short form Line 2 (deductions). 1040 short form   If the child does not itemize deductions on Schedule A (Form 1040), enter $2,000 on line 2. 1040 short form   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. 1040 short form Directly connected. 1040 short form   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. 1040 short form These expenses include custodian fees and service charges, service fees to collect taxable interest and dividends, and certain investment counsel fees. 1040 short form   These expenses are added to certain other miscellaneous itemized deductions on Schedule A (Form 1040). 1040 short form Only the amount greater than 2% of the child's adjusted gross income can be deducted. 1040 short form See chapter 28 for more information. 1040 short form Example 1. 1040 short form 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. 1040 short form His adjusted gross income is $8,000, which is entered on Form 1040, line 38, and on Form 8615, line 1. 1040 short form 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. 1040 short form Example 2. 1040 short form Eleanor, age 8, has unearned income of $16,000 and an early withdrawal penalty of $100. 1040 short form She has no other income. 1040 short form She has itemized deductions of $1,050 (net of the 2% limit) that are directly connected with the production of her unearned income. 1040 short form Her adjusted gross income, entered on line 1, is $15,900 ($16,000 − $100). 1040 short form The amount on line 2 is $2,050. 1040 short form This is the larger of: $1,000 plus the $1,050 of directly connected itemized deductions, or $2,000. 1040 short form Line 3. 1040 short form   Subtract line 2 from line 1 and enter the result on this line. 1040 short form If zero or less, do not complete the rest of the form. 1040 short form However, you must still attach Form 8615 to the child's tax return. 1040 short form Figure the tax on the child's taxable income in the normal manner. 1040 short form Line 4 (child's taxable income). 1040 short form   Enter on line 4 the child's taxable income from Form 1040, line 43, or Form 1040A, line 27. 1040 short form   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. 1040 short form 929. 1040 short form Line 5 (net unearned income). 1040 short form   A child's net unearned income cannot be more than his or her taxable income. 1040 short form Enter on Form 8615, line 5, the smaller of line 3 or line 4. 1040 short form This is the child's net unearned income. 1040 short form   If zero or less, do not complete the rest of the form. 1040 short form However, you must still attach Form 8615 to the child's tax return. 1040 short form Figure the tax on the child's taxable income in the normal manner. 1040 short form Step 2. 1040 short form 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. 1040 short form 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. 1040 short form 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. 1040 short form For example, do not refigure the medical expense deduction. 1040 short form Figure the tentative tax on Form 8615, lines 6 through 13. 1040 short form Note. 1040 short form If the child or parent has any capital gains or losses, get Publication 929 for help in completing Form 8615, Part II. 1040 short form Line 6 (parent's taxable income). 1040 short form   Enter on line 6 the parent's taxable income from Form 1040, line 43, Form 1040A, line 27, or Form 1040EZ, line 6. 1040 short form   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. 1040 short form Line 7 (net unearned income of other children). 1040 short form   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. 1040 short form Do not include the amount from line 5 of the Form 8615 being completed. 1040 short form Example. 1040 short form Paul and Jane Persimmon have three children, Sharon, Jerry, and Mike, who must attach Form 8615 to their tax returns. 1040 short form 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. 1040 short form Line 7 of Jerry's Form 8615 will show $1,800 ($800 + $1,000). 1040 short form Line 7 of Mike's Form 8615 will show $1,400 ($800 + $600). 1040 short form Other children's information not available. 1040 short form   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. 1040 short form See Parent's return information not known timely , earlier. 1040 short form Line 11 (tentative tax). 1040 short form   Subtract line 10 from line 9 and enter the result on this line. 1040 short form This is the tentative tax. 1040 short form   If line 7 is blank, skip lines 12a and 12b and enter the amount from line 11 on line 13. 1040 short form Also skip the discussion for lines 12a and 12b that follows. 1040 short form Lines 12a and 12b (dividing the tentative tax). 1040 short form   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. 1040 short form This is done on lines 12a, 12b, and 13. 1040 short form Add the amount on line 7 to the amount on line 5 and enter the total on line 12a. 1040 short form Divide the amount on line 5 by the amount on line 12a and enter the result, as a decimal, on line 12b. 1040 short form Example. 1040 short form In the earlier example under Line 7 (net unearned income of other children), Sharon's Form 8615 shows $1,600 on line 7. 1040 short form The amount entered on line 12a is $2,400, the total of the amounts on lines 5 and 7 ($800 + $1,600). 1040 short form The decimal on line 12b is  . 1040 short form 333, figured as follows and rounded to three places. 1040 short form   $800 = . 1040 short form 333     $2,400   Step 3. 1040 short form 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. 1040 short form This is the child's tax. 1040 short form It is figured on Form 8615, lines 14 through 18. 1040 short form Alternative minimum tax. 1040 short form   A child may be subject to alternative minimum tax (AMT) if he or she has certain items given preferential treatment under the tax law. 1040 short form See Alternative Minimum Tax (AMT) in chapter 30. 1040 short form    For more information on who is liable for AMT and how to figure it, see Form 6251, Alternative Minimum Tax—Individuals. 1040 short form 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. 1040 short form Prev  Up  Next   Home   More Online Publications