Cyclone Posted February 22, 2014 Report Share Posted February 22, 2014 I have a client who has an UTMA (Uniform Transfer to Minor Account) account for their 11 year old child. In 2013 they moved some funds around within the account (changed investment allocations) but did NOT take money out of the account. A 1099-B was generated in the child's social security number with Proceeds from the sale showing about $10,000. The Basis of the shares exceeds that so it actually had a capital loss of about $200. It is a "covered" transaction so the basis has been reported to the IRS. The child also has interest and dividends that amount to about $50. No wages. My confusion is with the kiddie tax. I am thinking this applies since the proceeds were over $2,000. Since there was a loss on the transaction it would actually benefit the parent's to report this on their return and I know that was not the IRS's intent with this tax. If it was a capital gain over $2,000 then I know the kiddie tax would apply but since it is a loss I am unsure how or if to report it. The client would prefer not to have to file any returns for it if they are not required. Would you file a return if it was a "non-covered" security and no basis information is reported to the IRS? I am not a fan of these accounts (unless the parents are high income) and am encouraging clients to do a 529 for college savings instead. Quote Link to comment Share on other sites More sharing options...
Pacun Posted February 22, 2014 Report Share Posted February 22, 2014 I have a client who has an UTMA (Uniform Transfer to Minor Account) account for their 11 year old child. In 2013 they moved some funds around within the account (changed investment allocations) but did NOT take money out of the account. A 1099-B was generated in the child's social security number with Proceeds from the sale showing about $10,000. The Basis of the shares exceeds that so it actually had a capital loss of about $200. It is a "covered" transaction so the basis has been reported to the IRS. The child also has interest and dividends that amount to about $50. No wages. My confusion is with the kiddie tax. I am thinking this applies since the proceeds were over $2,000. Since there was a loss on the transaction it would actually benefit the parent's to report this on their return and I know that was not the IRS's intent with this tax. If it was a capital gain over $2,000 then I know the kiddie tax would apply but since it is a loss I am unsure how or if to report it. The client would prefer not to have to file any returns for it if they are not required. Would you file a return if it was a "non-covered" security and no basis information is reported to the IRS? I am not a fan of these accounts (unless the parents are high income) and am encouraging clients to do a 529 for college savings instead. File the kids return and NO kiddie tax is involved. 2 Quote Link to comment Share on other sites More sharing options...
michaelmars Posted February 22, 2014 Report Share Posted February 22, 2014 KIddie tax kicks in based on net income not the gross sales price. this sale belongs to the kid and the loss carryover will stay till the kid has taxable income. 1 Quote Link to comment Share on other sites More sharing options...
Cyclone Posted February 22, 2014 Author Report Share Posted February 22, 2014 File the kids return and NO kiddie tax is involved. Thanks for the reply....sorry I misspoke, there shouldn't be kiddie tax but I think the kiddie tax rules may require a tax return to be filed for the child. I agree with Michael that ideally the net capital loss would not trigger kiddie tax but I wonder if the IRS systems will send letters out to clients if they don't file a return especially for the "non-covered" securities that they don't get the basis information for. I will probably advise my client that since there is a net loss they won't be subject to kiddie tax and probably don't need to file a return if they don't want to and we will deal with it if the parent or child gets a letter from the IRS. If I have another one come up with a "non-covered" security I will plan to file a return for the child however. Quote Link to comment Share on other sites More sharing options...
Gail in Virginia Posted February 22, 2014 Report Share Posted February 22, 2014 You can file this on the parent's return using Form 8814 if I am not mistaken. That way the child does not have to file, but the IRS can match the 1099B to a return. Quote Link to comment Share on other sites More sharing options...
Randall Posted February 22, 2014 Report Share Posted February 22, 2014 File the child return and carry forward the capital loss for future use on child returns. Also track 1099-Div for basis even though brokerages and fund companies are supposed to track that now. 1 Quote Link to comment Share on other sites More sharing options...
Cyclone Posted February 22, 2014 Author Report Share Posted February 22, 2014 File the child return and carry forward the capital loss for future use on child returns. Also track 1099-Div for basis even though brokerages and fund companies are supposed to track that now. Good points....thanks Quote Link to comment Share on other sites More sharing options...
Lion EA Posted February 22, 2014 Report Share Posted February 22, 2014 Just like an adult with a stock sale, file the return to report the basis, and in this case loss. You can put on parents' return if interest and dividends ONLY, not for stock sales. 1 Quote Link to comment Share on other sites More sharing options...
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