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At only thirteen years old, Melissa Moore is a promising figure skater with dreams of Olympic competition. When she was born, her parents established a section 2503(c) Minor's Trust on her behalf. Melissa's parents are in the 37% marginal federal income tax bracket. In 2024, $15,000 of income from the trust was distributed to cover private figure skating coaching sessions. Assume that Melissa has no other sources of income. How will the distribution of trust income be taxed?
- This distribution of unearned income from a trust for a minor's current enjoyment will be taxed under "kiddie tax" rules. The tax that applies to the $15,000 distribution will be $130.
- This distribution of unearned income from a trust for a minor's current enjoyment will be taxed under "kiddie tax" rules. The tax that applies to the $15,000 distribution will be $3,204.
- The income will be taxed entirely at the fiduciary tax rates applicable to trusts. The tax that applies to the $15,000 distribution will be $3,771.
- This distribution of unearned income from a trust for a minor's current enjoyment will be taxed at the parent's highest marginal rate. The tax that applies to the $15,000 distribution will be $4,846.
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Correct answer:
B. This distribution of unearned income from a trust for a minor's current enjoyment will be taxed under "kiddie tax" rules. The tax that applies to the $15,000 distribution will be $3,204.
Instructor insight:
Income distributed from a Section 2503(c) Minor's Trust is taxed under "kiddie tax" rules as follows:
| Breakdown of $15,000 Distribution | Tax Amount |
| $1,300 (child's standard deduction) | $0 |
| $1,300 x 10% (child's tax rate) | $130.00 |
| $12,400 x parent's highest marginal rate | $3,094.00 |
| Total | $3,204.00 |
