William and Irma have two children,Tom,age 13,and Sara,age 8.For 2017,Tom and Sara have a total parental tax of $5,600.Tom's net unearned income is $5,000,while Sara's net unearned income is $15,000.How much of the parental tax would be allocated to Sara on her 2017 tax return?

Question

Quizplus · Accepted Answer

The first step is to calculate the children's taxable income. Tom's net unearned income is less than his standard deduction of $1,050 (for children under age 19), so his taxable income is $0. Sara's net unearned income is more than her standard deduction, but less than her exemption amount of $4,050 (for children under age 18), so her taxable income is also $0. 
Therefore, the $5,600 total parental tax is allocated entirely to William and Irma, and none of it is allocated to the children. 
However, since Sara's net unearned income is greater than $2,100, some of her investment income may be subject to the Kiddie Tax, which applies the parents' tax rate to the child's investment income above $2,100. This calculation would be done on Form 8615.

William and Irma Have Two Children,Tom,age 13,and Sara,age 8