Publication 929B Figuring Additional Tax Use Step 2 of Form 8814 to figure the tax on your child's interest and dividends you do not include in your income. This tax is added to the tax figured on your income. This additional tax is the smaller of: 15% x (your child's gross income – $650), or $97.50. Include the amount from line 8 of all your Forms 8814 in the total on line 39, Form 1040, or line 38, Form 1040NR. Check box a on Form 1040, line 39, or Form 1040NR, line 38. Illustrated Example David and Linda Parks are married and will file separate tax returns for 1997. Their only child, Philip, is 8. Philip received a Form 1099-INT for 1997 showing $3,200 taxable interest income and a Form 1099-DIV showing $300 ordinary dividends. His parents decide to include that income on one of their returns so they will not have to file a return for Philip. First, David and Linda each figure their taxable income (Form 1040, line 38) without regard to Philip's income. David's taxable income is $41,700 and Linda's is $59,300. Because her taxable income is greater, Linda can elect to include Philip's income on her return. On Form 8814, Linda enters her name and social security number, then Philip's name and social security number. She enters Philip's taxable interest income, $3,200, on line 1a. Philip had no tax-exempt interest income, so she leaves line 1b blank. Linda enters Philip's ordinary dividends, $300, on line 2a. Philip did not have any nontaxable distributions, so she leaves line 2b blank and enters $300 on line 2c. Linda adds lines 1a and 2c and enters the result, $3,500, on line 3. From that amount she subtracts the $1,300 base amount shown on line 4 and enters the result, $2,200, on line 5. This is the part of Philip's income that Linda must add to her income. Linda includes the $2,200 in the total on line 21 of her Form 1040 and in the space next to that line writes "Form 8814–$2,200." Adding that amount to her income increases each of the amounts on lines 22, 32, 33, 36, and 38 of her Form 1040 by $2,200. Linda is not claiming any deductions or credits that are affected by the increase to her income. Therefore, her revised taxable income on line 37 is $61,500 ($59,300 + $2,200). On Form 8814, Linda subtracts the $650 shown on line 6 from the $3,500 on line 3 and enters the result, $2,850, on line 7. Because that amount is $650 or more, she enters $97.50 on line 8. This is the tax on the $1,300 of Philip's income that Linda did not add to her income. She must add this additional tax to the tax figured on her revised taxable income. The tax on her $61,500 revised taxable income is $14,901. She adds $97.50, and enters the $14,998.50 total on line 39 of Form 1040, and checks box a. Linda attaches Form 8814 to her Form 1040. Tax for Children Under Age 14 Who Have Investment Income of More Than $1,300 Part of a child's 1997 investment income may be subject to tax at the parent's tax rate if: The child was under age 14 on January 1, 1998, The child's investment income was more than $1,300, and The child is required to file a tax return for 1997. [Figure 5, Do You Have To Use Form 8615 To Figure Your Child's Tax?, is not included in online publication. ] If you do not or cannot choose to include the child's income on your return, figure the child's tax on Form 8615. Attach the form to the child's Form 1040, Form 1040A, or Form 1040NR. On Form 8615, enter your name and social security number and your child's name and social security number in the spaces provided. (If you filed a joint return, enter the name and social security number listed first on the joint return.) Check the box for your filing status. Then figure the child's tax on Form 8615 in these steps: Figure the child's net investment income. Figure a tentative tax on the net investment income based on the parent's tax rate. Figure the child's tax. Parent's Return See Which Parent's Return To Use, earlier, for a discussion of which parent's return information must be used on Form 8615. Different tax years. If you and the child do not have the same tax year, complete Form 8615 using the information on the your return for the tax year that ends in the child's tax year. Example. Kimberly must use her mother's tax and taxable income to complete her Form 8615 for calendar year 1997 (January 1 - December 31). Kimberly's mother files her tax returns on a fiscal year basis (July 1 - June 30). Kimberly must use the information on her mother's return for the tax year ending June 30, 1997, to complete her 1997 Form 8615. Estimated information. If the information needed from your return is not known by the time the child's return is due (usually April 15), you can file the return using estimates. You can use any reasonable estimate. This includes using information from last year's return. If you use an estimated amount on Form 8615, write "Estimated" on the line next to the amount. When you get the correct information, file an amended return on Form 1040X, Amended U.S. Individual Income Tax Return. Extension of time to file. Instead of using estimates, you may be able to get an automatic 4-month extension of time to file. To get the extension, you must file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. Calendar year taxpayers must file Form 4868 by April 15, 1998. If you file for an extension, you must file the child's return by August 15, 1998. An extension of time to file is not an extension of time to pay. You must make an accurate estimate of the tax for 1997. If you you cannot pay the full amount due with Form 4868, you can still get the extension. You will owe interest on the unpaid amount. See Form 4868 and its instructions. Parent's return information not available. If a child cannot get the required information about his or her parent's tax return, the child (or the child's legal representative) can request the necessary information from the Internal Revenue Service. How to request. A signed, written request for the information must be sent to the Internal Revenue Service Center where the parent's return will be filed. The request must contain all of the following: A statement that you are making the request to comply with section 1(g) of the Internal Revenue Code and that you have tried to get the information from the parent, Proof the child is under 14 years of age (for example, a copy of the child's birth certificate), Evidence the child has more than $1,300 of unearned income (for example, a copy of the child's prior year tax return or copies of Forms 1099 for the current year), and The name, address, social security number (if known), and filing status (if known) of the parent whose information is to be shown on Form 8615. A child's legal representative making the request should include a copy of his or her Power of Attorney, such as Form 2848, or proof of legal guardianship. The IRS cannot process the request before the end of the tax year. In fact, you should also consider getting an extension of time to file the child's return, because there may be a delay in getting the information. Part I. Figuring Net Investment Income The first step in figuring a child's tax using Form 8615 is to figure the child's net investment income. To do that, use Part I of Form 8615. [The example Illustrated Part I of Form 8615 not available in online publication.] Line 1 (investment income). If the child had no earned income, enter the adjusted gross income shown on the child's return. Adjusted gross income is shown on line 32 of Form 1040; line 16 of Form 1040A; or line 32 of Form 1040NR. Form 1040EZ cannot be used if Form 8615 must be filed. If the child had earned income, figure the amount to enter on line 1 of Form 8615 by using the worksheet in the instructions for the form. However, use the following worksheet if the child has excluded any foreign earned income or deducted a loss from self-employment or a net operating loss from another year. Alternate Worksheet for Line 1 of Form 8615 A. Enter the amount from the child's Form 1040, line 22 or Form 1040NR, line 23: $________ B. Enter the total of any net loss from self-employment, any net operating loss deduction, any foreign earned income exclusion, and any foreign housing exclusion from the child's Form 1040 or Form 1040NR: $________ C. Add line A and line B and enter the total. Treat the amount on line B as positive (greater than zero): $________ D. Enter the child's earned income plus any deduction the child claims on line 29 of Form 1040 or Form 1040NR. Generally, the child's earned income is the total of the amounts reported on Form 1040, lines 7, 12, and 18 (if line 12 or 18 is a loss, use zero) or Form 1040NR, lines 8, 13, and 19 (if line 13 or 19 is a loss, use zero): $________ E. Subtract line D from line C. Enter the result here and on Form 8615, line 1: $________ Investment income defined. Investment income is generally all income other than salaries, wages, and other amounts received as pay for work actually done. It includes taxable interest, dividends, capital gains, the taxable part of social security and pension payments, and certain distributions from trusts. Investment income includes amounts produced by assets the child obtained with earned income (such as interest on a savings account into which the child deposited wages). Nontaxable income. For this purpose, investment income includes only amounts the child must include in total income. Nontaxable investment income, such as tax-exempt interest and the nontaxable part of social security and pension payments, is not included. Capital loss. A child's capital losses are taken into account in figuring the child's investment income. Losses are first applied against gains. If the losses are more than the gains, the difference is a net capital loss. The net capital loss (up to $3,000) is then subtracted from the child's interest, dividends, and other investment income to figure the child's investment income. Income from gifts. A child's investment income includes all income produced by property belonging to the child. This is true even if the property was transferred to the child, regardless of when the property was transferred or purchased or who transferred it. A child's investment income includes income produced by property given as a gift to the child. This includes gifts to the child from grandparents or any other person and gifts made under the Uniform Gift to Minors Act. Example. Amanda Black, 13, received the following income: Dividends—$600 Wages—$2,100 Taxable interest—$1,200 Tax-exempt interest—$100 Capital gains—$300 Capital losses—($200) The dividends were on stock given to her by her grandparents. Amanda's investment income is $1,900. This is the total of the dividends ($600), taxable interest ($1,200), and capital gains reduced by capital losses ($300 - $200 = $100). Her wages are earned (not investment) income because they are received for work actually done. Her tax-exempt interest is not included because it is nontaxable. Trust income. If a child is the beneficiary of a trust, distributions of taxable interest, dividends, capital gains, and other investment income from the trust are investment income to the child. Adjustment to income. In figuring the amount to enter on line 1, the child's investment income is reduced by any penalty on the early withdrawal of savings. Line 2 (deductions). If the child does not itemize deductions on Schedule A (Form 1040 or Form 1040NR), enter $1,300 on line 2. If the child does itemize deductions, enter on line 2 the larger of: $650 plus the child's itemized deductions on Schedule A (Form 1040 or Form 1040NR) that are directly connected with the production of the investment income, or $1,300. Directly connected. Itemized deductions are directly connected with the production of investment income if they are for expenses paid 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. These expenses are added to certain other miscellaneous deductions on Schedule A (Form 1040). Only the amount greater than 2% of the child's adjusted gross income can be deducted. See Publication 529, Miscellaneous Deductions, for more information. Example 1. Roger, 12, has investment income of $8,000, no other income, no adjustments to income, and itemized deductions of $300 that are directly connected with his investment income. His adjusted gross income is $8,000, which is entered on line 1. Line 2 is $1,300 because $1,300 is more than the sum of $650 plus his directly-connected itemized deductions of $300. Example 2. Eleanor, 8, has investment income of $16,000 and an early withdrawal penalty of $100. She has no other income. She has itemized deductions of $1,100 that are directly connected with the production of her investment income. Her adjusted gross income, entered on line 1, is $15,900 ($16,000 - $100). Line 2 is $1,750. This is the larger of: $650 plus the $1,100 of directly-connected itemized deductions, or $1,300. Eleanor's net investment income is $14,150 ($15,900 - $1,750). Line 3. If line 2 equals or is more than line 1, do not complete the rest of the form. However, you must still attach Form 8615 to the child's tax return. Figure the tax on the child's taxable income in the normal manner. Line 4 (child's taxable income). Enter on line 4 the child's taxable income from Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37. Line 5 (net investment income). A child's net investment income cannot be more than his or her taxable income. Enter on line 5 the smaller of line 3 or line 4 of Form 8615. This is the child's net investment income. Part II. Figuring Tentative Tax At Parent's Tax Rate The next step in completing Form 8615 is to figure a tentative tax on the child's net investment income at the parent's tax rate. The tentative tax is the difference between the tax on the parent's taxable income figured with the child's net investment income and the tax figured without it. Figure the tentative tax on lines 6 through 13. [Illustrated Step 2 of Form 8615 is not included in online instructions.] When figuring the tentative tax, do not refigure any of the exclusions, deductions, or credits on the parent's return because the child's net investment income is included on the parent's return. For example, do not refigure the medical expense deduction. Line 6 (parent's taxable income). Enter on line 6 the amount from the parent's Form 1040, line 38; Form 1040A, line 22; Form 1040EZ, line 6; TeleFile Tax Record, line J; Form 1040NR, line 37; or Form 1040NR-EZ, line 13. If the parent's taxable income is less than zero, enter zero on line 6. Trusts. Special rules may apply if the parent transferred property to a trust at less than fair market value. If the trust sold the property before August 6, 1997, and the sale was within two years of the transfer, the trust will have to pay tax at the parent's tax rate on at least part of the gain. See the Form 8615, Line Instructionsfor lines 6 and 10. Line 7 (net investment income of other children). If the tax return information of the parent is also used on any other child's Form 8615, enter on line 7 the total amounts from line 5 of all the other children's Forms 8615. Do not include the amount from line 5 of the Form 8615 being completed. Example. Paul and Jane Persimmon have three children, Sharon, Jerry, and Mike, who must attach Form 8615 to their tax returns. The children's net investment income amounts on line 5 of their Forms 8615 are: Sharon—$800 Jerry—$600 Mike—$1,000 Line 7 of Sharon's Form 8615 would show $1,600, the total amounts on line 5 of Jerry's and Mike's Forms 8615. Line 7 of Jerry's Form 8615 would show $1,800 ($800 + $1,000). Line 7 of Mike's Form 8615 would show $1,400 ($800 + $600). Other children's information not available. If the net investment income of the other children is not available when the return is due, either file the return using estimates or get an extension of time to file. Estimates and extensions are discussed earlier under Parent's Return. Line 9 (tax on parent's taxable income plus children's net investment income). Figure the tax on line 9 in one of the following ways, depending on whether there is any net capital gain included in the total on line 8. (If there is net capital gain on lines 5, 6, or 7, then there is also net capital gain on line 8.) If net capital gain is not included in the total on line 8 and line 8 is less than $100,000, use the Tax Table to figure the tax on line 9. If line 8 is $100,000 or more, use the Tax Rate Schedules. If net capital gain is included in the total on line 8, you must determine the net capital gain included on line 8 of Form 8615 to figure the tax on line 9. Net capital gain is the excess of net long-term capital gain over net short-term capital loss. For 1997, this is the smaller of the gain on line 16 or the gain on line 17 of Schedule D (Form 1040). Use the following discussions to find the amounts of net capital gain on lines 5, 6, and 7 included on line 8. Net capital gain on line 5. Use one of the Line 5 Worksheets below to figure the net capital gain from line 5 included on line 8. Use the following worksheet to figure the net capital gain included on line 5 of the child's Form 8615 if that line is the same as line 3, and line 2 is $1,300. Line 5 Worksheet #1 A. Enter the child's net capital gain: $_______ B. Enter the amount from line 1 of the child's Form 8615: $_______ C. Divide line A by line B (but do not enter more than 1): $________ D. Multiply $1,300 by the result on line C: $________ E. Subtract line D from line A. This is the net capital gain included on line 5 (but do not enter more than the amount on line 5 of Form 8615): $________ Use the following worksheet if line 5 of the child's Form 8615 is the same as line 3, and line 2 is more than $1,300. Line 5 Worksheet #2 A. Enter the child's net capital gain: $________ B. Enter the child's itemized deductions directly connected with the production of the child's net capital gain: $________ C. Subtract line B from line A: $________ D. Enter the amount from line 1 of the child's Form 8615: $________ E. Divide line A by line D (but do not enter more than 1): $________ F. Multiply $650 by line E: $________ G. Subtract line F from line C. This is the net capital gain included on line 5 (but do not enter more than the amount on line 5 of Form 8615): $________ Use the following worksheet if line 5 of the child's Form 8615 is less than line 3. Line 5 Worksheet #3 A. Enter the child's net capital gain: $_______ B. If the child itemized deductions, enter the child's itemized deductions directly connected with the production of the child's net capital gain: $_______ C. Subtract line B from line A: $_______ D. If the child can claim his or her own exemption, enter $2,650.* Otherwise, enter zero: $______ E. If the child itemized deductions, enter the child's itemized deductions not directly connected with the production of the child's net capital gain. Otherwise, enter the child's standard deduction: $________ F. Add lines D and E: $________ G. Enter the child's adjusted gross income (line 32 of the child's Form 1040): $________ H. Divide line A by line G (but do not enter more than 1): $_______ I. Multiply line F by line H: $_______ J. Subtract line I from line C. This is the net capital gain included on line 5 (but do not enter more than the amount on line 5 of Form 8615): $_______ *If you enter more than $121,200 on line G, see Deduction for Exemptions Worksheet—Line 37 in the Form 1040 instructions for the amount to enter on line D. Net capital gain on line 6. If net capital gain is included on line 6 of Form 8615, the net capital gain from that line included on line 8 is the smaller of the gain on line 16 or line 17 of the parent's Schedule D. Do not attach the parent's Schedule D to the child's return. Net capital gain on line 7. If net capital gain is included on line 7 of Form 8615, the net capital gain from that line included on line 8 must be figured by using a Line 5 Worksheet, explained earlier. Since the amount on line 7 is the total of the net investment income of the parent's other children who must file Form 8615, you will have to fill out a Line 5 Worksheet for each of those children who has a net capital gain on line 5 of his or her own Form 8615. Do not attach a copy of any of the other children's Dorm 8615 to this child's return. Net capital gain on line 8. The net capital gain included on line 8 is the sum of the net capital gains figured on lines 5, 6, and 7. Completing Line 9 Schedule D Worksheet. Once you have determined the amount of net capital gain included on line 8, use Part IV of another Schedule D as a worksheet to figure the tax to enter on line 9 of Form 8615. For purposes of this worksheet, use information from the parent and all the parent's children for whom Form 8615 is filed, but only for those showing net capital gain (excess of net long-term capital gain over net short-term capital loss). All Schedules D, Part IV, must be filled out before using this worksheet. Complete this worksheet as follows: On line 19 of Schedule D (worksheet), enter the amount from line 8 of Form 8615. On line 20 of Schedule D (worksheet), enter the net capital gain included on line 8 of Form 8615. Add the amounts from lines 21 of each Schedule D (actual). Enter the total on line 21 of Schedule D (worksheet). On line 22 of Schedule D (worksheet), subtract line 21 from line 20. Leave line 23 of Schedule D (worksheet) blank. On line 24 of Schedule D (worksheet), add the following amounts: a) (The child's net capital gain from bottom line of line 5 worksheet ÷ The child's total net capital gain from line A of line 5 worksheet) × The child's line 24, Schedule D (actual). b) (Each other child's net capital gain from bottom line of line 5 worksheet ÷ That child's total net capital gain from line A of line 5 worksheet) × That child's line 24, Schedule D. c) The parent's line 24, Schedule D. On line 25 of Schedule D (worksheet), add the following amounts: a) (The child's net capital gain from bottom line of line 5 worksheet ÷ The child's total net capital gain from line A of line 5 worksheet) × The child's line 25, Schedule D (actual). b) (Each other child's net capital gain from bottom line of line 5 worksheet ÷ That child's total net capital gain from line A of line 5 worksheet) × That child's line 25, Schedule D. c) The parent's line 25. Complete lines 26 through 54 of Schedule D (worksheet). Enter the amount from line 54 of Schedule D (worksheet) on line 9 of Form 8615 and check the box. Do not attach this worksheet to the child's return. Line 10 (parent's tax). Enter on line 10 the amount from the parent's Form 1040, line 39; Form 1040A, line 23; Form 1040EZ, line 10; TeleFile Tax Record, line J; Form 1040NR, line 38; or Form 1040NR-EZ, line 14. Lines 12a and 12b (dividing the tentative tax). If line 7 is blank, skip lines 12a and 12b and enter the amount from line 11 on line 13. If an amount is entered on line 7, divide the tentative tax shown on line 11 among the children according to each child's share of the total net investment income. This is done on lines 12a, 12b, and 13. Add the amount on line 7 to the amount on line 5 and enter the total on line 12a. Divide the amount on line 5 by the amount on line 12a and enter the result, as a decimal, on line 12b. Example. In the earlier example under Line 7 (net investment income of other children), Sharon's Form 8615 shows $1,600 on line 7. The amount entered on line 12a is $2,400, the total of the amounts on lines 5 and 7 ($800 + $1,600). The decimal on line 12b is .333, figured as follows and rounded to three places. $800 ÷ $2,400 = .33 Line 13 (child's share of tentative tax). If an amount is entered on line 7, multiply line 11 by the decimal on line 12b and enter the result on line 13. If line 7 is blank, enter the amount from line 11 on line 13. Line 13 is the child's share of the tentative tax. Part III. Figuring the Child's Tax The final step in figuring a child's tax using Form 8615 is to determine the larger of: The total of: a) The child's share of the tentative tax based on the parent's tax rate, plus b) The tax on the child's taxable income in excess of net investment income, figured at the child's tax rate, or The tax on the child's taxable income, figured at the child's rate. This is the child's tax. It is figured on lines 14 through 18 of Form 8615. Illustrated Part 3 of Form 8615 is not included in online publication. Line 14 (child's taxable income in excess of net investment income). Subtract line 5 from line 4 and enter the difference on line 14. If lines 4 and 5 are the same, enter zero on line 15 and enter the amount from line 13 on line 16. Line 15 (tax on excess of child's taxable income over child's net investment income). If line 14 does not include any net capital gain, use the Tax Table (use the Single column) or Tax Rate Schedule X to figure the tax on line 15. If any net capital gain is included on line 14 (Form 8615), figure the amount by using the Line 5 Worksheet used to figure net capital gain included on line 5. Subtract the net capital gain included on line 5 (the amount on the last line of the worksheet) from the child's net capital gain (the amount on line A of that worksheet). The result is the amount of net capital gain included on line 14 of the child's Form 8615. Use Part IV of Schedule D to figure the tax on line 15. Completing Schedule D Worksheet for line 15. Once you have determined the amount of net capital gain on line 14, use Part IV of another Schedule D as a worksheet to figure the tax to enter on line 15 of Form 8615. Complete this worksheet as follows: On line 19 of Schedule D (worksheet), enter the amount from line 14 of Form 8615. Leave line 20 of Schedule D (worksheet) blank. Leave line 21 of Schedule D (worksheet) blank. On line 22 of Schedule D (worksheet), enter the net capital gain included on line 14 of Form 8615. Leave line 23 of Schedule D (worksheet) blank. On line 24 of Schedule D (worksheet), subtract the amount figured in step 6a) under Completing Line 9 Schedule D Worksheet from the child's line 24, Schedule D (actual). On line 25 of Schedule D (worksheet), subtract the amount figured in step 7a) under Completing Line 9 Schedule D Worksheet from the child's line 25, Schedule D (actual). Complete lines 26 through 54 of Schedule D (worksheet). Enter the amount from line 54 of Schedule D (worksheet) on line 15 of Form 8615 and check the box. Do not attach this worksheet to the child's return. Line 16. Add lines 13 and 15 and enter the total on line 16. If lines 4 and 5 are the same, enter zero on line 15. Then enter the amount from line 13 on line 16. Line 17 (tax at child's rate). Figure the tax on the child's taxable income entered on line 4. Use the Tax Table for single status, Tax Rate Schedule X, or the child's Schedule D (actual), whichever applies to figure the tax on line 17. Enter the amount on line 17. If it is from Schedule D, check the box. Attach this Schedule D to the child's return. Line 18 (tax). Enter on line 18 the larger of line 16 or line 17. Also enter this amount on the child's Form 1040, line 39; Form 1040A, line 23; or Form 1040NR, line 38. This is the child's tax. Alternative Minimum Tax A child may be subject to alternative minimum tax (AMT) if he or she has certain items given preferential treatment under the tax laws or certain adjustments to taxable income that total more than an exemption amount. These items include accelerated depreciation, tax-exempt interest income, passive activity losses, and certain distributions from estates or trusts. For more information on who is liable for AMT and how to figure it, get Form 6251, Alternative Minimum Tax—Individuals, and its instructions. Limit on exemption amount. Ordinarily, single people can subtract a $33,750 exemption amount from their AMT taxable income. However, a child who files Form 8615 has a limited exemption amount. The child's exemption amount is limited to the child's earned income plus the greater of $1,300 or the child's share of the unused parental AMT exemption. Figure the child's allowable exemption amount on the worksheet in the instructions for line 22 of Form 6251. Unused parental exemption. The unused parental AMT exemption is the amount by which the parent's AMT exemption exceeds that parent's AMT taxable income. Limit on AMT. Ordinarily, AMT (line 28 of Form 6251) is figured by subtracting the regular tax (line 27) from the tentative minimum tax (line 26). However, the AMT of a child who files Form 8615 may be reduced or eliminated if either the child's parent or another child whose Form 8615 uses that parent's tax return information does not owe AMT. To figure a child's limited AMT, first complete his or her Form 6251 through line 27. If applicable, also complete separate Forms 6251 for the parent and each of the other children whose Form 8615 uses that parent's tax return information. Then complete line 28 following the form instructions for that line. Illustrated Example This example shows how to fill out Forms 8615 and 1040A for Sara Brown. An illustration of the filled-in form is not included in online publication. John and Laura Brown have one child, Sara. She is 13 and has $2,500 taxable interest and dividend income and $1,500 earned income. She does not itemize deductions. John and Laura file a joint return with John's name and social security number listed first. They claim three exemptions, including an exemption for Sara, on their return. Because Sara has both earned and unearned income and her gross income is more than $650, she must file a tax return. Because she is under age 14 and has more than $1,300 investment income, part of her income may be subject to tax at her parents' rate. A completed Form 8615 must be attached to her return. Sara's father, John, fills out Sara's return for her. John enters his name and social security number on Sara's Form 8615 because his name and number are listed first on the joint return he and Laura are filing. He checks the box for married filing jointly. He enters Sara's investment income, $2,500, on line 1. Sara does not itemize deductions, so John enters $1,300 on line 2. He enters $1,200 on line 3 ($2,500 - $1,300). Sara's taxable income, as shown on line 22 of her Form 1040A, is $2,500. This is her total income ($4,000) minus her standard deduction ($1,500). Her standard deduction is limited to the amount of her earned income. John enters $2,500 on line 4. John compares lines 3 and 4 and enters the smaller amount, $1,200, on line 5. John enters $48,000 on line 6. This is the taxable income from line 38 of their joint Form 1040 return. Sara is an only child, so line 7 is blank. He adds line 5 ($1,200), line 6 ($48,000), and line 7 and enters $49,200 on line 8. Using the column for married filing jointly in the Tax Table, John finds the tax on $49,200. He enters the tax, $8,427, on line 9. He enters $8,091 on line 10. This is the tax from line 39 of John and Laura's Form 1040. He enters $336 on line 11 ($8,427 - $8,091). Because line 7 is blank, John skips lines 12a and 12b and enters $336 on line 13. John subtracts line 5 ($1,200) from line 4 ($2,500) and enters the result, $1,300, on line 14. Using the column for single filing status in the Tax Table, John finds the tax on $1,300. He enters this tax, $197, on line 15. He adds lines 13 ($336) and 15 ($197) and enters $533, on line 16. Using the column for single filing status in the Tax Table, John finds the tax on $2,500 (line 4). He enters this tax, $377, on line 17. John compares lines 16 and 17 and enters the larger amount, $533, on line 18 of Sara's Form 8615. He also enters that amount on line 23 of Sara's Form 1040A. John also completes Schedule 1, Form 1040A (not shown here) for Sara. [Form 8615 for Sara L. Brown is not included in online publication.] Glossary Adjusted gross income—Gross income (defined later) minus adjustments to income (defined next). Adjustments to income—Deductions that are subtracted from gross income in figuring adjusted gross income. They include deductions for moving expenses, alimony paid, a penalty on early withdrawal of savings, and contributions to an individual retirement arrangement (IRA). Adjustments to income can be taken even if itemized deductions (defined later) are not claimed. Alternative minimum tax—A tax designed to collect at least a minimum amount of tax from taxpayers who benefit from the tax laws that give special treatment to certain kinds of income and allow deductions and credits for certain kinds of expenses. Capital gain distribution—An allocated amount paid to, or treated as paid to, a shareholder by a mutual fund, regulated investment company, or real estate investment trust from its net realized long-term capital gains. This amount is in addition to any ordinary dividend paid to the shareholder. You will receive a statement from the payer if this applies to you. Dependent—A person, other than the taxpayer or the taxpayer's spouse, for whom an exemption (defined later) can be claimed. You can generally claim an exemption for a dependent if the dependent: Lives with or is related to you, Is a U.S. citizen, U.S. resident, or a resident of Canada or Mexico, Does not file a joint return, Does not have $2,650 or more of gross (total) income (does not apply to your child if under 19 or a student under 24), and Is supported (generally more than 50%) by you. For more information, see Exemptions for Dependents in Publication 501. Earned income—Salaries, wages, tips, professional fees, and other amounts received as pay for work actually done. For purposes of determining a dependent's standard deduction, earned income also includes any part of a scholarship or fellowship grant that the dependent must include in his or her gross income. Exemption—An amount ($2,650 for 1997) that can be subtracted from income in figuring how much income will be taxed. Exemptions generally are allowed for the taxpayer, the taxpayer's spouse, and qualifying dependents. Filing status—The category (single, married filing joint return, married filing separate return, head of household, or qualifying widow(er) with dependent child) you fit into that determines such things as your filing requirement, your standard deduction, and your correct tax. These are the same categories listed on Forms 1040 and 1040A and shown in the headings of the Tax Table columns and the Tax Rate Schedules. For more information, see Filing Statusin Publication 501. Gross income—All income from all sources (other than tax-exempt income) that must be included on your tax return. Investment income—See Unearned income. Itemized deductions—Deductions allowed on Schedule A (Form 1040) for medical and dental expenses, taxes, interest, charitable contributions, casualty and theft losses, and miscellaneous deductions. They are subtracted from adjusted gross income in figuring taxable income. Itemized deductions cannot be claimed if the standard deduction is chosen. Net capital gain—The excess of net long-term capital gain over any net short-term capital loss. For 1997, this is the smaller of the gain on line 16 or the gain on line 17 of Schedule D (Form 1040), Capital Gains and Losses. Net investment income—The total of all investment income (other than tax-exempt income) reduced by the sum of the following: adjustments to income related to the investment income, plus the larger of: $650 plus itemized deductions directly connected with producing the investment income, or $1,300. Standard deduction—An amount (based on filing status, age, blindness, status as a dependent, and amount of earned income) that can be subtracted from adjusted gross income in figuring taxable income. The standard deduction is not used if itemized deductions are claimed. Tax year—Time period covered by a tax return. Usually this is January 1 to December 31, a calendar year, but taxpayers can elect a fiscal tax year with different beginning and ending dates. Taxable income—Gross income minus any adjustments to income, any allowable exemptions, and either itemized deductions or the standard deduction. Unearned income—This is income other than earned income. It is investment-type income and includes interest, dividends, and capital gains. Distributions of interest, dividends, capital gains, and other unearned income from a trust are also unearned income to a beneficiary of the trust. How To Get More Information You can get help from the IRS in several ways. Free publications and forms. To order free publications and forms, call 1-800-TAX-FORM (1-800-829-3676). You can also write to the IRS Forms Distribution Center nearest you. Check your income tax package for the address. Your local library or post office also may have the items you need. For a list of free tax publications, order Publication 910, Guide to Free Tax Services. It also contains an index of tax topics and related publications and describes other free tax information services available from the IRS, including tax education and assistance programs. If you have access to a personal computer and modem, you also can get many forms and publications electronically. See Quick and Easy Access to Tax Help and Forms in your income tax package for details. Tax questions. You can call the IRS with your tax questions. Check your income tax package or telephone book for the local number, or you can call 1-800-829-1040. TTY/TDD equipment. If you have access to TTY/TDD equipment, you can call 1-800-829-4059 to ask tax questions or to order forms and publications. See your income tax package for the hours of operation. Evaluating the quality of our telephone services. To ensure that IRS representatives give accurate, courteous, and professional answers, we evaluate the quality of our "800 number" telephone services in several ways. A second IRS representative sometimes monitors live telephone calls. That person only evaluates the IRS assistor and does not keep a record of any taxpayer's name or tax identification number. We sometimes record telephone calls to evaluate IRS assistors objectively. We hold these recordings no longer than one week and use them to measure the quality of assistance. We value our customers' opinions. Throughout the year, we will be surveying our customers for their opinions on our service.