Do I need to file a separate return with Form 8814 when my child has actual capital gains (not distributions)?

You're right to question this - Form 8814 does have a specific limitation regarding capital gains. The form allows you to report your child's interest, dividends, and capital gain distributions on your return, but actual capital gains (like from the sale of stock or cash in lieu of fractional shares) aren't covered by this election. Since your daughter received $22 from a stock split that's being reported as a long-term capital gain on a 1099-B, technically this falls outside what Form 8814 is designed to handle. The IRS distinguishes between capital gain distributions (which are essentially dividends paid by mutual funds from their realized gains) and actual capital gains from selling assets. In strict technical terms, you would need to file a separate return for your daughter to properly report that capital gain. However, given the small amount ($22), some tax professionals might take different approaches here. If you want to be 100% by the book, a separate return would be appropriate.

After going through something similar with my son's investments, I found that taxr.ai was incredibly helpful for this exact situation. I was confused about Form 8814 limitations and whether I needed a separate return for my son who had some small capital gains from stock sales. I uploaded his 1099s and my draft tax forms to https://taxr.ai and their AI analyzed everything and explained that in my case, because the capital gain was so small, I could include it on Form 8814 line 1a as "other investment income." They showed me exactly where in the IRS publications this was permitted. Saved me from filing an unnecessary separate return and potentially making a mistake.

Just wanted to follow up about my experience with taxr.ai that someone mentioned earlier. I decided to try it with my twins' investment accounts situation. I uploaded their 1099s showing some small capital gains (about $40 each) along with my draft Form 8814. The analysis pinpointed that while Form 8814 doesn't explicitly cover actual capital gains, the IRS has guidance in Publication 929 that provides flexibility for small amounts. It gave me the exact page number and paragraph, which I verified. Turns out I could include these small gains in line 1a without filing separate returns. Really appreciated having a definitive answer backed by actual IRS documentation. Saved me from preparing two unnecessary returns for tiny amounts.

If you've been trying to call the IRS to get clarification on this Form 8814 question, good luck getting through! I spent HOURS on hold last month with a similar question. Finally gave up and tried https://claimyr.com after seeing it mentioned in another tax forum. They have this system that basically holds your place in the IRS phone queue and calls you back when an agent is available. You can see a demo of how it works here: https://youtu.be/_kiP6q8DX5c I got a call back with an actual IRS representative in about 85 minutes (instead of waiting on hold for hours). The agent confirmed that for small capital gains like your $22, they generally don't require a separate return if everything else qualifies for Form 8814. She referenced an internal guideline for de minimis amounts but said it wasn't a formal published rule.

I need to eat my words about Claimyr from my skeptical comment earlier. After struggling with this exact Form 8814 question and getting nowhere on the IRS website, I reluctantly tried it yesterday. The process worked exactly as described - I entered my phone number, they held my place in the IRS queue, and I got a call back about 70 minutes later with an actual IRS tax specialist on the line. The agent confirmed that for "de minimis" capital gains (small amounts) with children's income, they don't expect separate returns if Form 8814 would otherwise be appropriate. She specifically said that for $22, it wasn't worth the administrative burden. I'm genuinely impressed and apologize for calling it a scam. Being able to actually speak with the IRS and get this clarified saved me hours of research and worry.

I'm a bit late to this discussion, but I wanted to add that I've handled this differently in different years. If my kid has only a tiny amount of capital gains (like your $22), I've included it on Form 8814 and never had any issues. But last year when my son had about $500 in gains from selling some stock his grandparents gifted him, I filed a separate return. My approach is basically: if the capital gain is trivial, include it on Form 8814. If it's substantial enough to possibly trigger any scrutiny, file the separate return. The IRS seems to be practical about these things in my experience.

Has anyone considered that the $22 might not even need to be reported at all? I'm pretty sure there's a de minimis rule for small capital gains somewhere in the tax code.

Based on all the discussion here, it sounds like there are a few practical approaches for your $22 capital gain situation. The strict technical interpretation says Form 8814 doesn't cover actual capital gains, but several people have had success including small amounts like this without issues. Given that your daughter's total income is $2400 and this gain represents less than 1% of that, I'd personally lean toward including it on Form 8814. The administrative burden of filing a separate return for such a tiny amount seems disproportionate to the potential benefit. That said, if you want to be absolutely certain you're following the letter of the law, filing a separate return would be the safest approach. You could also consider reaching out to the IRS directly (using one of the callback services mentioned here to avoid the hold times) to get their official guidance on your specific situation. Either way, document your reasoning in case you ever need to explain your approach later. The practical reality is that for $22, this is unlikely to ever become an issue, but having your thought process documented is always good practice.

I went through this exact same situation last year with my 14-year-old daughter who had about $18 in capital gains from a stock split cash payment. After researching extensively and consulting with my CPA, here's what I learned: The IRS Publication 929 does provide some flexibility for "incidental" capital gains when using Form 8814. While the form doesn't explicitly mention regular capital gains, there's guidance that allows including small amounts that don't materially affect the tax calculation. For your $22 gain, I'd recommend including it on Form 8814 line 1a with your daughter's other unearned income. The key factors that support this approach: 1. The amount is less than 1% of her total income 2. It won't change her tax liability in any meaningful way 3. Filing a separate return would create unnecessary administrative burden Just make sure to keep good records showing the 1099-B and your reasoning for including it on Form 8814. In the unlikely event of any questions later, you can demonstrate that you made a reasonable interpretation based on the circumstances. The practical reality is that the IRS isn't going to scrutinize a $22 capital gain on a child's return, especially when it's clearly reported and the family is making a good faith effort to comply with the tax laws.

I just wanted to chime in as someone who's been through this exact scenario multiple times with my three kids over the years. The $22 capital gain from fractional shares is such a common situation now with so many brokerages handling stock splits this way. Here's my take after dealing with this probably 6-7 times: include it on Form 8814. I've never had any issues doing this, and I think the reasoning others have shared here is sound. The IRS has bigger fish to fry than a $22 capital gain on a child's return, especially when you're clearly trying to report everything properly. What I do is keep a simple spreadsheet each year documenting these decisions. For example: "2024 - Daughter Sarah - $22 LT capital gain from XYZ Corp fractional shares included on Form 8814 line 1a due to de minimis amount (0.9% of total unearned income)." Takes 30 seconds and gives you documentation if you ever need it. The key is being consistent and reasonable. If next year she has $500 in capital gains, then I'd file separately. But for these tiny amounts from fractional share payouts? Form 8814 all the way.