Goldie and Kurt have a 12-year-old child, Wyatt. For 2023, Goldie and Kurt have taxable income of $101,000, and Wyatt has interest income of $4,700. No election is made to include Wyatt's income on Goldie and Kurt's return. For purposes of the tax on a child's unearned income, calculate Wyatt's taxable income.
For the tax year 2023, a child's unearned income, such as interest income, may be subject to the "kiddie tax" if it exceeds a certain threshold. The kiddie tax is designed to prevent parents from shifting large amounts of investment income to their children to take advantage of the child's lower tax rate. Here's how to calculate Wyatt's taxable income for the kiddie tax: 1. Determine the annual threshold for the kiddie tax. For 2023, the first $1,150 of a child's unearned income is not subject to tax, and the next $1,150 is taxed at the child's tax rate. 2. Calculate the amount of unearned income above the threshold that will be taxed at the parents' rate. If Wyatt's unearned income is $4,700, we subtract the first $1,150 that is not taxed: $4,700 (total unearned income) - $1,150 (not taxed) = $3,550 3. The next $1,150 is taxed at Wyatt's tax rate. Subtract this from the remaining unearned income: $3,550 (remaining unearned income) - $1,150 (taxed at child's rate) = $2,400 The $2,400 is the amount of Wyatt's unearned income that will be taxed at Goldie and Kurt's tax rate, assuming they have a higher tax rate than Wyatt. Therefore,
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