How to report summer camp cost deduction on UTMA income in TurboTax?

[titi10402022]

Hello there,

Last year, I opened a UTMA account for my child and earned $5,000, as indicated in my 1099. This implies that $1,250 is taxed at 0%, $1,250 at 10%, and $2,500 at my personal rate, which is 37%.

Recently, I discovered that I can deduct the $2,000 spent on my child's summer camp from the UTMA account. My question is, how should I report this deduction? I assume I need to manually adjust my UTMA 1099. However, the numbers will differ from the copy the broker reported to the IRS.

Any guidance on how to navigate this situation in TurboTax would be greatly appreciated. This marks my first year handling such matters, so your assistance is invaluable.

Thank you!

[rjs]

You don't deduct the summer camp cost from the UTMA income that is reported on the tax return. Summer day camp is a child care expense, provided that the child was under 13 years old and you meet other requirements. (There is no deduction or credit for overnight camp.) Report the full amount of income from the UTMA account, and claim the child care credit separately.

The income from the UTMA is the child's income. It's not clear whether you are reporting the child's income on your own tax return or on a separate tax return for the child. If you are filing a separate tax return for the child, the credit for child care expenses goes on your tax return, not the child's tax return.

Did you pay for summer camp from your own funds, or did you take money out of the UTMA account to pay for camp? The money in the UTMA account belongs to the child. If you took the money out of the UTMA, then you did not pay for the camp. The child paid for it, so you cannot claim the child care credit. If you paid for the camp yourself you can claim the credit on your tax return.

To enter child care expenses, in the Search box type "child care" (without the quotes), then click the link that says "Jump to child care."

[titi10402022]

Thank you for your response.

Considering your advice from another post (thank you again), I am leaning towards filing the child's return for better tax efficiency. In this scenario, I can claim the $5,000 Dependent Care FSA (DCFSA) on my return and an additional child care credit of ($6,000 - $5,000) * 20% = $200, as our daycare costs (excluding summer camp) are notably high. If the child's return doesn't include the summer camp deduction, the taxes would be $1,250 * 10% + $2,500 * 37%. Am I correct in this understanding?

Given that summer camp is not considered a "necessary" expense, I believe it qualifies for the UTMA income deduction. My question is, how should I report this deduction? Should it be included on the child's return?

Your guidance on this matter is highly appreciated.

[rjs]

I don't know what "the UTMA income deduction" is. Where do you see that term? There is no tax deduction for money spent from a UTMA account or for income earned in a UTMA account.

You don't seem to be making a clear distinction between income earned in the UTMA account and money spent from the UTMA account for the child's benefit. Any interest, dividends, or capital gains earned from investments held in the child's UTMA account should stay in the UTMA account. They are income to the child. If the child files a separate tax return the investment income is taxed at the child's rate up to the kiddie tax threshold, and at the parents' rate above that.

Money that is taken out of the UTMA account and spent is not income to either the parents or the child, so it is not reported on either tax return. There is no tax deduction for money taken out of the UTMA account, since it does not appear on a tax return to begin with. It is simply not reported. It makes no difference whether the money taken out of the UTMA account is from investment income or from the money in the account. And as far as taxes are concerned, it makes no difference what the money that was taken out of the UTMA account is spent on.