Members of the Maryland Association of Certified Public Accountants are answering readers' tax questions through April 15.
Q: My 15-year-old had $614 in unearned income last year from interest, dividends and capital gain distributions from mutual funds. My understanding is that a federal return has to be filed if a child with some unearned income has income of $600 or more. I worked it out and he has a $2 tax liability. Do I really have to file a return for $2? Also, can I file the short form or does it have to be the full fledged 1040 and Schedules B and D? What about for the state of Maryland?
A: Yes, you must file a return. The IRS requires that any tax liability due over $1 must be paid. Dependent children with unearned income exceeding $600 must file a return for 1994. Since your child had capital gain distributions you must use Form 1040. File Schedule B with Form 1040 as well. Enter the capital gain distribution on Line 13 on the Form 1040 and write "CGD" next to the amount; this will allow you to avoid filing Schedule D.
You do not have to file a Maryland return since the state threshold for dependent children is Maryland gross income of $6,250 or more.
The above advice is for general purposes only and is not intended as legal, accounting or tax advice. Specific situations may vary.
To submit a question, call Sundial, The Sun's telephone information service, at (410) 783-1800. In Anne Arundel County call 268-7736, in Harford 836-5028, and in Carroll 848-0338. Using a touch-tone phone, enter 6225 after the greeting. Push 1 to submit a tax question; state the question in full. Push 2 to hear a tax tip. Selected questions will be answered in the Business section. No questions will be answered by phone. Please leave your name and phone number.