Free Online Guides
Other
Resources
About
Fairmark.com
By Kaye A. Thomas
Updated March 5, 2009
Most minors claim a reduced standard deduction and no personal exemption.
Minor children, like other taxpayers, have a choice between claiming itemized deductions or the standard deduction. Children usually have a small amount of itemized deductions or none at all, so in most cases they claim the standard deduction.
A taxpayer that isn't a dependent of any other taxpayer gets a standard deduction in a fixed amount, depending on filing status. (It's adjusted each year for inflation.) For a dependent child, the size of the standard deduction depends on how much earned income the child has (as opposed to investment income, which is considered unearned income for this purpose).
This complicated rule says your child's standard deduction is the greater of the following two amounts:
Here's a way to make sense of this rule. Your dependent child's standard deduction starts at $950 and stays there if all the child's income is unearned income. When your child begins to have earned income, the first $650 will not cause any increase in the standard deduction — but after that, each additional dollar earned will increase the standard deduction by a dollar (effectively making the earnings tax-free) until the standard deduction reaches the amount that would be allowed if your child were not a dependent.
The personal exemption is another fairly hefty deduction: $3,650 for 2009. Unfortunately, a child can't claim a personal exemption if someone else is entitled to claim the exemption. That's true even if the other person doesn't actually claim the exemption. The mere fact that someone else qualifies for the exemption is enough to disqualify the child from claiming it.
You can't give a personal exemption to your dependent child by not claiming it, but you may be able to help your child claim an education credit (Hope scholarship credit or lifetime learning credit) by not claiming the exemption. This can be a good idea if the child gets more benefit from the education credit than you can get from the exemption.
| That Thing Rich People Do |
|
The fastest, easiest way to learn the principles of investing. |
| Go Roth! | |
|
Our complete guide to Roth IRAs and Roth accounts in 401k and similar plans: choosing, creating, building and using these accounts. |
| Consider Your Options | |
|
|
A plain-language guide for people who receive stock options or other forms of equity compensation. |
| Equity Compensation Strategies | |
|
|
A text for financial advisors and other professionals who offer advice on how to handle equity compensation including stock options. |
| Capital Gains, Minimal Taxes | |
|
|
Tax rules and strategies for people who buy, own and sell stocks, mutual funds and stock options. |