Unearned income (exemption amount (850) + greater of exemption – amount (850) or child’s itemized deductions) Assume §63(c)(5)(A) limitation on basic STND deduction adjusted for inflation is $850 Excess is taxed at parent’s rate RATIONALE FOR THE KIDDIE TAX Response to perceived abuses, parent transferring income producing assets to income belong to child and taxed at kiddie rate, income splitting. Some legitimate transfers, appointing trustee to be a custodian of the property Ch. 19 - Moving , Child Care, & Legal Expenses MOVING EXPENSES 47 min Contrast w/ §162 Here, not already in T or B, t/f 162 deduction NOT available § 217 Must move a certain distance Ensures you for B purpose; otherwise, would cover simple moves Timing Requirement Must work certain amt of weeks (39) Sympathy provisions, e.g. dead, fired, etc. Distance Requirement Current commute, plus 50 miles N: if don’t have commute, just 50 miles from residence N: can’t get over threshold by taking scenic route (anti-abuse) What’s Deductible? N: regs haven’t caught up yet two items Cost of transporting TP and other household members and belongings R cost of lodging in route R-ness requirement CHILD CARE EXPENSES 1 hr, 4 min Personal & Business Elements Allows parents to not go insane, and to work H/w, still have personal obligation to children Issue: how do you devy b/t the two? Credit’s in General Deduction: subtract from GI; value is reduction of overall income subject to TR, t/f value connected to tax rate Ex: in 35% bracket, 1 dollar deduction, value = 35 cents Leads to up-side-down effect, e.g. more valuable to TP’s in higher income bracket Ex: home mortgage interest 1 hr, 6 min How do you fix? Make a credit rather than deduction Credit: dollar for dollar reduction of tax liab Ex: if entitled to 2K care credit, reduces overall tax liab by 2K NOT a f(x) of tax bracket, unless made specifically related by code provison
Unearned income – (exemption amount (850) + greater of exemption amount (850) or child’s itemized deductions) Assume §63(c)(5)(A) limitation on basic STND deduction adjusted for inflation is $850 Excess is taxed at parent’s rate RATIONALE FOR THE KIDDIE TAX Response to perceived abuses, parent transferring income producing assets to income belong to child and taxed at kiddie rate, income splitting. Some legitimate transfers, appointing trustee to be a custodian of the property Ch. 19 - Moving , Child Care, & Legal Expenses MOVING EXPENSES 47 min Contrast w/ §162 Here, not already in T or B, t/f 162 deduction NOT available § 217 Must move a certain distance Ensures you for B purpose; otherwise, would cover simple moves Timing Requirement Must work certain amt of weeks (39) Sympathy provisions, e.g. dead, fired, etc. Distance Requirement Current commute, plus 50 miles N: if don’t have commute, just 50 miles from residence N: can’t get over threshold by taking scenic route (anti-abuse) What’s Deductible? N: regs haven’t caught up yet two items Cost of transporting TP and other household members and belongings R cost of lodging in route R-ness requirement CHILD CARE EXPENSES 1 hr, 4 min Personal & Business Elements Allows parents to not go insane, and to work H/w, still have personal obligation to children Issue: how do you devy b/t the two? Credit’s in General Deduction: subtract from GI; value is reduction of overall income subject to TR, t/f value connected to tax rate Ex: in 35% bracket, 1 dollar deduction, value = 35 cents Leads to up-side-down effect, e.g. more valuable to TP’s in higher income bracket Ex: home mortgage interest 1 hr, 6 min How do you fix? Make a credit rather than deduction Credit: dollar for dollar reduction of tax liab Ex: if entitled to 2K care credit, reduces overall tax liab by 2K NOT a f(x) of tax bracket, unless made specifically related by code provison