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Ren, age 12, has ordinary income of $3,978. His parents elect to report Ren's income on...

Ren, age 12, has ordinary income of $3,978. His parents elect to report Ren's income on their tax return. The additional amount of tax computed using Ren's Form 8814 that will be reported on his parents' return is?

1) $105

2) $110

3) $210

4) $220

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Answer #1

Option 1, i.e $105.

If child received qualified dividends or capital gain distributions, you may pay up to $105 more tax if you make this election instead of filing a separate tax return for the child. This is because the tax rate on the child's income between $1,050 and $2,100 is 10% if you make this election. However, if you file a separate return for the child, the tax rate may be as low as 0% (zero percent) because of the preferential tax rates for qualified dividends and capital gain distributions.

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