Hello,
I currently have 2 kids who have custodial investment accounts under my name. Currently, the balances are very modest and since the accounts are regular "taxable" accounts, I wanted to capture the amount of allowable gains they achieve that fall below the unearned kiddie tax.
A quick search shows that if a child receives only unearned income of $1,350 or less, he or she doesn't have to file taxes. But for clarification, is that $1,350 the GROSS amount of proceeds or NET?
For instance, if they had $3,000 in stock at the beginning of the year, (also cost basis for sake of argument), and the stock value rose to $4,350 and we sold/immediately repurchased, would I have to file taxes for them?
I actually don't mind the filing on the Federal side, but my state doesn't allow minors to access their online portal so it's either pay one of these services or use snail mail.
TIA!
EDIT: If you have a spelling mistake in the title, you stuck with that scar forever! REDDDDDDIT!!!!
Kiddie Tax and Filing Threshold Clarrification
byu/teenwolf4ever1 intax
Posted by teenwolf4ever1
3 Comments
One would think it’s net. I too, have two boys with custodial stock accounts and I decided NOT to file their unearned income of about $700 each.
Taxable income is based on the net profit. If you bought $3,000 of stock, then sold it for $4,000, they only have $1,000 of taxable income and are not required to file a tax return.
That being said, sometimes you should file a tax return anyway, especially if your investment company doesn’t record the basis correctly. It’s possible that the company sends you a tax form with the $4,000 sale price and “basis unknown” so the IRS will think it’s $4,000 profit until you file a tax return saying that your basis was $3,000 and profit $1,000.
You are focusing on the wrong threshold if you want to maximize the gains. It’s true that below $1,350 you don’t need to file but the next $1,350 is taxed at the child’s rate of zero. If they make between $1,350-$2,700, you’d need to file a return but there would be zero tax.
Once the children have summer jobs, they’ll want to file a tax return to get their refunds, so then they’d need to put all their income even if it’s below $1,350.
>I actually don’t mind the filing on the Federal side, but my state doesn’t allow minors to access their online portal
Please note that in some states the filing threshold is lower than the federal threshold. For example, in PA, it is $33.