My daughter got an Ameritrade account titled
Her Name AS CUST FOR Son's Name UTMA CA UNTIL AGE 18

Son is 2 1/2 years old. Account is under son's SS #


Her account, invested in stocks, has realized about $4000 in ST Cap
Gains in 2021.

Her accountant says

Put son's stuff on mother's tax return because she is the custodian and
if you do a separate return for the child they ask for the parent's
income anyhow and tax it that way,

Is this correct and is it the best way to file?

Mel

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MZB <moo@noway.prudigy.net> wrote:

My daughter got an Ameritrade account titled
Her Name AS CUST FOR Son's Name UTMA CA UNTIL AGE 18

Son is 2 1/2 years old. Account is under son's SS #

Her account, invested in stocks, has realized about $4000 in ST
Cap Gains in 2021.

Her accountant says

Put son's stuff on mother's tax return because she is the
custodian and if you do a separate return for the child they ask
for the parent's income anyhow and tax it that way,

Is this correct and is it the best way to file?

The accountant is mostly right, but left out an option. If the
unearned income is more than $1100, if a separate return is filed for
the child, I think the first $1100 is not taxed. The balance would
be taxed at the parents' tax bracket. This rule only applies to
unearned income.


--
Stu
http://DownToEarthLawyer.com

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My daughter got an Ameritrade account titled
Her Name AS CUST FOR Son's Name UTMA CA UNTIL AGE 18
Son is 2 1/2 years old. Account is under son's SS #

Her account, invested in stocks, has realized about $4000 in ST Cap
Gains in 2021.

Her accountant says

Put son's stuff on mother's tax return because she is the custodian and
if you do a separate return for the child they ask for the parent's
income anyhow and tax it that way,

Is this correct and is it the best way to file?

It's not correct at all. The accountant is totally wrong.
You cannot report a child's capital gains on the parent's
return. They have to file a separate return for the child.

You can include a child's investment income on the parent's
return if the child's only income is interest and dividends,
including capital gain *distributions* (in 1099-DIV box 2a).
But if the child has actual capital gains (on a 1099-B), not
just capital gain distributions, it cannot go on the
parent's return.

Including a child's interest and dividends on the parent's
return has nothing to do with who the custodian is. It
doesn't matter whether the custodian is the child's parent
or someone else. It's a choice of including a child's income
on the parent's return or filing a separate return for the
child.

IRS Publication 929 has a long list of reasons that
reporting the child's income on the parent's return could
result in paying more tax. See "Effect of Making the
Election" on page 11. That includes a number of deductions
and credits that could be reduced or eliminated because the
child's income increases the parent's AGI. The only
advantage of reporting the income on the parent's return, if
it can be done at all, is that it's a little less paperwork.

Bob Sandler

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I agree with what Bob said.

Re: what Stu said "If the unearned income is more than $1100, if a separate return is filed for the child, I think the first $1100 is not taxed. The balance would be taxed at the parents' tax bracket. This rule only applies to unearned income. " - It's
almost correct. Assuming this 2.5yo's income is all from investments: On child's own tax return, the first $1,100 of income will be tax-free, the 2nd $1,100 of income will be taxed at child's own rate (10%?), and the remainder will be taxed at the
parents' marginal tax rate.

Maria U. Ku, CPA
Oakland, CA

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<< The foregoing was not intended or written to be used, >>
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<< that may be imposed upon the taxpayer. >>
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