How to Handle Kiddie Tax & Pub 929 for Minor with Missing Parent?

Does the same apply if the child has a living parent but they're estranged instead of completely missing? My niece lives with us but her dad (my brother) is alive but hasn't been in contact for 3 years...not sure how to handle her investment income for this year.

For estranged but known parents, the rules are different. If the parent is still living and their whereabouts are known, even if there's no contact, you generally still need to use that parent's information for Kiddie Tax purposes. The IRS primarily looks at the legal parent-child relationship, not the quality of that relationship. If getting the parent's tax information is impossible due to estrangement, you may need to document your attempts to obtain this information. In some cases, with proper documentation of the situation, you might qualify for an exception, but this is decided on a case-by-case basis and should be discussed with a tax professional familiar with your specific circumstances.

Does this tool actually help with complex family situations? I'm dealing with something similar where I have custody of my grandchild but no formal guardianship paperwork, and they have investment income that might trigger Kiddie Tax.

I'm suspicious about these kinds of services. How do you know they're giving correct information? Seems risky to trust some random website with something as complicated as Kiddie Tax when there are literally IRS publications that tell you what to do.

The tool definitely handles complex family situations - that was actually why I tried it. It asks detailed questions about your specific guardianship arrangement and then shows you the exact parts of the tax code that apply. It even helped me understand what documentation I needed since I didn't have formal court papers. For those concerned about accuracy, what I liked is that it doesn't just give you an answer - it actually shows you the specific sections from Pub 929 and Form 8615 instructions that apply to your situation. You can verify everything it tells you against the official IRS guidance. It just makes interpreting those dense publications much easier and applies them to your specific circumstances.

Wait, how does this service actually work? Does it just call the IRS for you? I'm confused why I would pay for something like that when I can just call myself?

Yeah right. The IRS phone system is completely broken, I find it hard to believe any service could get through when millions of people can't. Sounds like you're just promoting something that doesn't actually work.

The service uses technology that navigates the IRS phone tree and waits on hold for you. When they reach a human agent, they call you and connect you directly to that person. It's basically like having someone wait on hold for you, which saved me hours of frustration. I was skeptical too before trying it. The reason it works when calling yourself often doesn't is because their system can continuously redial and navigate the phone menus automatically, something that would drive a normal person insane to do manually. I literally tried calling myself for three weeks at different times of day with no success before using this.

Yes, this is a really important consideration! Under current Kiddie Tax rules (they've changed a few times), the child's unearned income above a certain threshold is taxed at the parent's/guardian's rate. With $67K, that's substantial and will likely push them into a higher bracket. There are some planning strategies that could help, like spreading income over multiple years if possible, or investing in growth assets rather than income-producing ones. The child might also benefit from contributing to a traditional IRA if they have any earned income to offset some of the tax burden.

Thanks for the insights on this. I hadn't thought about the possibility of an IRA contribution if the child has any earned income. That's a good point. One other question - does anyone know if there are state-specific rules for Kiddie Tax that might differ from the federal guidelines? We're in Michigan, and I'm trying to make sure we're covering all bases for both federal and state taxes.

The Kiddie Tax applies to all types of unearned income above the annual threshold, but there can be differences in how specific types of income are treated initially. Capital gains (like from the LLC sale) are generally taxed at preferential rates before the Kiddie Tax applies. So first the preferential capital gains rates would apply, then the Kiddie Tax calculations would determine if additional tax is owed based on the guardian's rates. Interest and dividend income are initially taxed as ordinary income, then subject to Kiddie Tax adjustments. The first $1,250 (for 2023) of unearned income is typically exempt from Kiddie Tax, the next $1,250 is taxed at the child's rate, and anything above $2,500 is what gets taxed at the guardian's rate.

This is really helpful advice about having the guardianship documentation ready. I'm actually dealing with a somewhat similar situation with my stepson - his biological father has been out of the picture for years, and we're trying to figure out the tax implications of some inheritance money he received. The point about estimated tax payments is especially important. With that much in capital gains, the tax bill could be substantial depending on your income level as guardians. It might be worth running some quick calculations to see if quarterly payments should have been made to avoid penalties. @8685dfd8712b Do you remember what specific documentation the IRS requested when you dealt with your nephew's situation? I want to make sure we're prepared with the right paperwork.