Filing a separate return for a minor

[martoro]

Hello. I am filing a separate return for a minor to make use of a capital loss in an UTMA account. I am pretty sure I do not need to transfer anything to my federal return, but do I need to transfer anything from the child return to the parent STATE return (NJ concretely)? Thank you!

[rjs · Accepted solution]

Nothing from the child's tax return transfers to the federal or New Jersey return of the parent.

If the child is subject to "kiddie tax" some information from the parent's return will be needed for Form 8615 in the child's return.

If the child is someone's dependent, be sure to check the box on the child's return that says someone can claim him or her as a dependent.

[martoro]

Thank you, this was very helpful. I was exactly wondering where the kiddie tax is computed, on the parent or child return. There is no kiddie tax this year due to the loss, but it makes sense it will be on the child return. I wasn't aware of 8615 (first time filing a child's return), but the 8615 Wks is computed by turbotax.

I see in the Info Wks that the "Someone can claim the child as dependent" checkbox is checked. What does this do? What are the consequences of not checking it?

Thanks again!

[rjs]

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@martoro wrote:

I see in the Info Wks that the "Someone can claim the child as dependent" checkbox is checked. What does this do? What are the consequences of not checking it?

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The checkbox will make TurboTax calculate the child's standard deduction according to the rules for a dependent instead of the rules for someone who is not a dependent. It also might affect who can claim an education credit. I'm sure there are other deductions or credits that cannot be claimed by a dependent, but I don't have a list and I can't think of what they are right now.

The consequence of not checking the box is that the person who is eligible to claim the child as a dependent will not be able to. If they try to e-file and claim the dependent their e-file will be rejected. If they file by mail and claim the dependent they will get a notice from the IRS removing the dependent from their tax return and billing them for the resulting additional tax, penalties, and interest. When a dependent files a tax return and does not check that box, straightening out the mess is a lot of extra work and takes a long time.

[martoro]

Thanks again for the detailed reply! I wish there was a way for the entire family to file together similar to Married filing jointly. It appears there are quite a few gotchas (dependent checkbox) and confusions (on which return is the kiddie tax calculated).

Another complication is that since it's the child's first return turbotax says the return cannot be efiled, but needs to be mailed. And now I have to do another one for the other child ...

[rjs]

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@martoro wrote:

Another complication is that since it's the child's first return turbotax says the return cannot be efiled, but needs to be mailed.

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That's an IRS rule, not a TurboTax rule.

[martoro]

Yes, I'm aware.