Children’s Taxes
There are cases where minor children need to file a tax return. Most commonly a parent or grandparent has opened a trust account in their name in order to gift the child money. The funds will accrue interest or other gains if invested in the stock market. Passive income, such as interest, is subject to taxes.
The amount of tax a minor will have to pay depends on his parent’s tax basis. In situations where a divorce has occurred, the child’s basis will generally depend on which parent claims him as a dependent. In determing whether to file a joint or separate return consider the effect your decision will have on the amount your child will ultimately have to pay in taxes.
Additionally, the separation agreement or divorce decree should clearly spell out who is responsible for covering the children’s taxes. In all fairness, if a joint return is filed during the separation and prior to the actual divorce both parents should be equally responsible to cover the children’s taxes.