Teens & Taxes: My Teen Has Investment Income — Do They Need to File Taxes?
Parents sometimes set their teens up with investments ranging from dividend-earning stocks to college savings plans. If your teen works, they might even have an Individual Retirement Account (IRA) or a 401(k) through their employer. You might be wondering if your teen needs to file taxes reporting their investment income.
First, it’s important to define investment income. If your teen was savvy enough to buy a few shares of Tesla in the summer of 2020, before the stock split, they might have reaped substantial profits. But those profits only count as investment income if they sell their shares.
On the other hand, if your teen purchased Target shares and has been collecting dividends, the dividend income is taxable — even if the money never leaves their account and they reinvest the funds into buying additional shares or shares of a different stock.
Similarly, if your child earns interest from a savings or investment account, they may have to declare that interest as income the same way an adult would. If your child received dividend or interest income, they will receive a 1099-DIV or 1099-INT, regardless of the amount of unearned income received.
However, teenagers and children may not have to file taxes for their unearned income the same way adults do. If a child’s interest, dividends, and other unearned income does not equal more than $2,200, your child does not have to file taxes.
If your child only has income from interest, dividends, and capital gain distributions, and it totals less than $11,000, you may be able to include that income on your own tax return, saving yourself and your child the time and hassle — and added cost if you use a tax preparer — of filing a tax return for your child or teen. You would declare your child’s unearned investment income on IRS Form 1884, which you would attach to your Form 1040, 1040-SR, or 1040-NR, according to IRS.gov.
Learn: Teens & Taxes: How Does Declaring Your Employed Teenager as a Dependent Affect Their Taxes?
Explore: Teens & Taxes: How Can I Be Sure My Teenager Won’t Be Accidentally Taxed on P2P Transactions?
If you opt not to include your child’s investments on your own tax return, they would need to file tax returns declaring any interest, dividends and capital gains distributions received if that amount is greater than $2,200.
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