Kiddie Tax: Planning (00114009, 2012)

This course contains detailed coverage of the kiddie tax as well as coverage of tax law changes. The course also contains tax-planning strategies that attempt to mitigate or eliminate the tax consequences of the kiddie tax. Tax planning suggestions are also provided at the end of the course. Topics covered include: how the kiddie tax works; determining which parent's marginal tax rate is used to compute the child's kiddie tax; computing the child's tax; and other aspects of the kiddie tax.
Final Exam > Results Page

final exam score:

80%

Question 1

Correct

Which of the following is not a purpose of the kiddie tax?

To limit certain types of family tax planning.

To tax part of certain minor children’s unearned income at the parent’s rates.

(You Answered) (Correct Answer) To eliminate the tax benefit of paying wages to minor children

None of the above

Question 2

Incorrect

Effective as of the 2012 tax year, a 21-year old child who has earned income in excess of one-half of their support:

(You Answered) Will be subject to the kiddie tax if their unearned income exceeds $1,900

May avoid the kiddie tax only if they are married and file a joint return

Is subject to the kiddie tax only if they are enrolled full-time in college

(Correct Answer) Is not subject to the kiddie tax

Question 3

Correct

The allocable parental tax:

Is the tax that would be incurred by the parent if the child’s income were not included in the calculation of the parent’s tax

Is computed by including all of the child’s income

Represents the total tax that the parent must pay when filing the parent’s tax return

(You Answered) (Correct Answer) None of the above

Question 4

Correct

Which of the following is considered to be unearned income for purposes of the kiddie tax?

Wages received from doing a paper route

(You Answered) (Correct Answer) Social security benefits paid to a child

Distributions from a qualified disability trust

All of the above

Question 5

Correct

For purposes of the kiddie tax, which of the following would qualify as a directly connected itemized deduction?

Cost of work uniforms paid by an employee of a fast food restaurant.

Investment counseling fees

Service fees to collect taxable interest and dividends

(You Answered) (Correct Answer) All of the above

Question 6

Incorrect

Under which of the following circumstances might it be advisable for a parent to elect to report the child’s income on the parent’s return?

(Correct Answer) The child has no itemized deductions.

The child is legally blind.

The parent is subject to the AMT and the child has tax-exempt interest income from specified private activity bonds.

None of the above

Question 7

Correct

Which of the following correctly describes an aspect of Form 8814?

(You Answered) (Correct Answer) The form is used to report the election by the parent to include the child’s income on the parent’s return.

The form should be filed if the child has investment income (in 2012) of $1,900 or more even if the child has no taxable income.

The amount of the parent’s taxable income has no impact on completing the tax form.

None of the above is correct.

Question 8

Correct

Julie Higgins’s 15-year old son, Bobby, had $8,000 of ordinary, nonqualified dividend income in 2012. Julie is a single taxpayer. Her AGI in 2012 puts her right at the start of the phase-out range for personal exemptions and itemized deductions. Which of the following tactics should Julie pursue?

(You Answered) (Correct Answer) Compute Bobby’s income tax on Form 8615.

Elect to use Form 8814 and report Bobby’s income on her income tax return.

Not claim Bobby as a dependent, thus enabling him to avoid the kiddie tax.

Gift additional income-yielding securities to Bobby.

Question 9

Incorrect

Electing to file Form 8814 and report the child’s income on the parent’s return would not be advisable if:

The child has qualified dividend income.

The child is legally blind.

(You Answered) The child has itemized deductions in 2012 in excess of $950.

(Correct Answer) All of the above are instances in which filing Form 8814 would not be advisable.

Question 10

Correct

With respect to the kiddie tax, which of the following statements regarding the impact of amending tax returns is correct?

An amended return of the parent does not affect the child’s tax return.

An amended return filed by the parent as a result of the child’s amended return may result in underpayment penalties imposed on the parent.

Only amended returns showing a five percent or greater adjustment to the tax liability have an impact on the kiddie tax.

(You Answered) (Correct Answer) None of the above statements are correct.