Kids custodial funds had capital gains over $850 what now?

Question

I didn't think through the capital gains implications of diversifying the guys out of a stock. In selling the equity - on has a LT gain of over $6k. So what would be the best thing to do? Submit a separate tax return for him? What forms would be needed?

Answer 1

The first question is whose name is on these fund accounts?

The name on the fund is the person who will pay the capital gain tax. (I ask because my son has accounts, but they're in the parent's names, and we pay the taxes on his gains out of our own pockets. We don't want the IRS into his money quite yet, he's only 5.)

Second, how old are the kids? For those 13 years and under, the "kiddie tax" applies. The kids pay taxes on unearned income at the same tax rate as the parents. This applies if their total income for the year was over $1600. For those 14 and over, they can file their own return and get a lower rate.

(Unearned income here includes dividends, interest, rents and royalties. Capital gains are apparently not included because Congress didn't think they constituted a "shift of property" from the parent to the child.)

So it sounds like you should just file a 1040 form for your kids seperately, include a schedual d, and pay the 5% tax. You'll still be able to claim them as dependants on your own as long as you DON'T let them claim themselves on their own form.

(There is an alternative deduction for them, and the worksheet is on the back of the 1040ez.)

Answer 2

Yes. If the child had capital gains from stock sales, you would file a separate tax return for the child. He would report this income on Form 1040, Schedule D.

Do not mark box 6a since he will not be claiming himself. You will still claim him as a dependent on your tax return. The child is still entitled to the standard deduction of $850 on his tax return.

The child will also need Form 8615, "Tax for Children Under Age 18 with Investment Income over $1,700" included with his tax return. This form will calculate the child's tax based on the parents' tax rates. You would need to complete your tax return before filing the child's tax return, as you will need your taxable income amount to fill in Form 8615.

Answer 3

I assume your child is under 18. Your child is required to file a tax return. Investment income in excess of $1,700 will be taxed at the parents' marginal tax rate. So you will need to do your tax return before doing the child's return.

Attach form 8615 to the child's return.

Answer 4

It doesn't matter. Anything over 850 is taxed at the parents rate. Whether it was on the childs own return, or you return, it's the same.

Answer 5

"The ESA helps households to develop funding income via tax-deferral see you later because the money are used for tutorial applications." enable me guess: you're not any more a tax lawyer? --- Coverdell education mark downs Account - ESA a technique of tax-deferred believe account created via the U.S. authorities to help households in funding academic prices for beneficiaries 18 years or youthful. even as better than one ESA will be set up for a unmarried beneficiary, the completed optimal contribution in line with year for any unmarried beneficiary is $2,000. earlier observed as an education IRA, the ESA helps households to develop funding income via tax-deferral see you later because the money are used for tutorial applications. operating example, in case you contributed $500 to an ESA and it widespread to $5,000 in 10 years, the income does no longer be taxed till the account's proprietor become enrolled in a submit-secondary employer. even as the contributions are dispensed, they're tax-loose assuming that they are lower than the account holder's annual adjusted qualified education prices. contained in the shape that the distributions are higher than the prices, the coolest points are taxed on the account holders' fee, quite than the contributor's fee, it truly is frequently higher.