You may either:
- Report all of the children's income on IRS Form 8814 on your tax return, or
- Prepare individual 1040 tax returns for each child and amend your individual 1040 tax return to remove the children's income. Each individual child's tax return may need to report IRS form 8815.
Parents use IRS Form 8814 to report their child’s income on their return, so their child will not have to file a return. However, in this case, the tax paid on the child’s custodial account will be at your higher rate, not at the child's tax rate.
Because all of the assets that are held in a custodial account are the legal property of the child beneficiary, the income will be taxed at the child’s lower rate. But the child's unearned income is subject to the IRS “kiddie tax”. The kiddie tax is used to tax a child’s capital gains and unearned income accumulated over the course of a tax year. If the child's unearned income is more than $2,200, you will use IRS Form 8615 to figure the child's tax.
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