on Worksheet 8615, how is "directly connected with the production of the child's investment income" defined?

[shanleigh]

Now that y'all have me on the right track, (thank you very much, @PattiF , @DavidD66 , @Hal_Al !) filing separately for my dependent child's unearned income from the sale of stocks. We're itemizing deductions because state tax (~$4K vs $1150 standard) was so high in 2021 due to the sale of stocks the previous year. On form 8615 worksheet - can I declare the whole state tax amount as being "directly connected with the production of the child's investment income" as the sale of the stocks was the ONLY thing that generated a state tax burden? This is how IRS describes:

https://www.irs.gov/pub/irs-pdf/i8615.pdf

If the child doesn't itemize deductions on Schedule A (Form 1040),
enter $2,300 on line 2.
If the child itemizes deductions, enter on line 2 the larger of:
1. $1,150 plus the portion of the amount on Schedule A (Form
1040), line 17 (or Schedule A (Form 1040-NR), line 8), that is
directly connected with the production of the unearned income on
Form 8615, line 1; or
2. $2,300.
Directly connected. Itemized deductions are directly connected
with the production of unearned income if they are for expenses to
produce or collect taxable income or to manage, conserve, or
maintain property held for producing income. These expenses
include custodian fees and service charges, service fees to collect
taxable interest and dividends, and certain investment counsel fees.
However, only certain directly connected expenses, such as
interest and deductible amortizable bond premiums, are deductible
in tax years 2018 through 2025.

[ShirlynW]

It depends on the State's requirement. Without knowing which state you are referring to, I am unable to give you an answer.

Children are in a lower tax bracket than their parents and the reason for this is quite simple: most children don't have that much income, and those that do, rarely earn more than their parents.  The federal government changed the tax treatment of children's unearned income by taxing it at the parent's tax rate. Form 8615 is used to make the child's tax calculations for this income.

[shanleigh]

It's Arkansas

[JohnW152]

No, you can't consider state income taxes on investment income as being directly connected with the production of unearned income.

As the Directly connected comment in the Instructions for Form 8615 suggest:

Itemized deductions are directly connected with the production of unearned income if they are for expenses to produce or collect taxable income or to manage, conserve, or maintain property held for producing income. 

Taxes on unearned income aren't expenses paid to produce or collect taxable income, and they're not needed to manage, conserve or maintain income-producing property.

Rather, they're a by-product of income already produced or collected.