Corduroy Frog Posted February 22 Report Share Posted February 22 Parents have a stockbrokerage account for 10-year old daughter. Dividends were minimal ($200), However one of the securities sold for $7000. The gain on the sale was $500. The "taxable income" (before std deduction) from all this is only $700. However, the "Gross Income" well exceeds the filing requirement. Is the daughter required to file? TTB only states "income." Depends on the definition of "income" I would think. Quote Link to comment Share on other sites More sharing options...
kathyc2 Posted February 22 Report Share Posted February 22 9 hours ago, Corduroy Frog said: Depends on the definition of "income" I would think. Definition of gross income: https://www.law.cornell.edu/uscode/text/26/61 1 Quote Link to comment Share on other sites More sharing options...
Corduroy Frog Posted February 22 Author Report Share Posted February 22 Thank you. Item 3 on the link defines the "gain" and not the "selling price." Quote Link to comment Share on other sites More sharing options...
BulldogTom Posted February 22 Report Share Posted February 22 I would file the return for the child. IRS is not good at picking up cost basis on stock sales. I think we have all seen the letter from the IRS with gross proceeds and no basis added to a return when a client "forgot" to tell us about stock trades that produced no income or a loss. IMHO, you will be doing the clients a favor by filing the return. You may be dealing with a letter in a year or so if you don't. And it may come back as a letter to the parents on why they did not include the gross income as kiddie tax on the parents return. I would also only charge a very minimal fee for filing the return and add it to the parents invoice. But that is just me. Tom Longview, TX 6 Quote Link to comment Share on other sites More sharing options...
TexTaxToo Posted February 22 Report Share Posted February 22 4 minutes ago, BulldogTom said: And it may come back as a letter to the parents on why they did not include the gross income as kiddie tax on the parents return. Kiddie tax, if it applies (it would not in this case), would go on the child's return. The parents may elect to include the child's taxable interest and dividends on their return, but not capital gains. On the facts presented, there is no filing requirement, but Tom is right that filing could prevent a letter, especially if basis was not reported to the IRS for the stock sale. 17 minutes ago, BulldogTom said: I would also only charge a very minimal fee for filing the return and add it to the parents invoice. But that is just me. 3 Quote Link to comment Share on other sites More sharing options...
mcb39 Posted February 22 Report Share Posted February 22 Everyone needs from time to time to refresh their knowledge about the kiddie tax. Clients have never heard of it and occasionally try to shift income to their minor children to avoid taxation. Tough scenarios to explain and/or calculate. 2 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted February 22 Report Share Posted February 22 I do about what Tom does, file a return for the child. I too have seen IRS letters based on Proceeds, even though the major brokerage reported Basis to the IRS. It's so much faster and easier to file the return for a child than to respond to an IRS letter. Filing for children (and the elderly) also can prevent ID theft, or in one case with a client, uncover ID theft early. Even though if it's only interest/dividends and can go on the parents' return, it has saved my clients a bit when reported on the child's return. Years ago in my HRB days, we got an IRS letter looking for a child's return when the interest had been reported on the parents' return where the child was a dependent. Time-consuming to deal with. And, unhappy clients getting an IRS letter! I charge a flat amount for children, sometimes separately and sometimes on the parents' invoice. 2 Quote Link to comment Share on other sites More sharing options...
Sara EA Posted February 23 Report Share Posted February 23 They got a letter even with basis reported? Are you sure? That defeats the whole purpose of the reporting mandate. 1 Quote Link to comment Share on other sites More sharing options...
Lion EA Posted February 23 Report Share Posted February 23 Yes, annoying. Can't remember the client now, so it may've been one of those brokerages that doesn't send consolidated 1099s until March and then sends corrected forms in April or later. I guess I can see how the CP letters go out before all the underlying forms are entered into the tax payer's account. But, still annoying. And, the client thinks we did something wrong! 1 Quote Link to comment Share on other sites More sharing options...
Randall Posted February 23 Report Share Posted February 23 And remember if there are capital losses, you can carry them forward each year. Give a them the worksheet and let them know to retain them for future years. 1 Quote Link to comment Share on other sites More sharing options...
kathyc2 Posted February 23 Report Share Posted February 23 5 hours ago, Randall said: And remember if there are capital losses, you can carry them forward each year. Give a them the worksheet and let them know to retain them for future years. I have an elderly couple with a carryforward. Their income is too low to ever use it so it keeps carrying forward. State income starts with federal AGI, so they get the state benefit of the same 3K year after year. Quote Link to comment Share on other sites More sharing options...
mcb39 Posted February 23 Report Share Posted February 23 Wisconsin only allows $500 per year. I have a client who will never use up the Federal $3000, let alone the WI deduction., even though they have enough taxable income to take the deduction going forward. Quote Link to comment Share on other sites More sharing options...
Sara EA Posted February 24 Report Share Posted February 24 The capital loss carryover of $3k has not been increased since 1978. According the Congressional Research Service, it would be about $13k if adjusted for inflation. 1 Quote Link to comment Share on other sites More sharing options...
Corduroy Frog Posted February 24 Author Report Share Posted February 24 Tom, you make sense. I'm going to file the girls return for free with explanation, as her parents have paid me handsomely. 2 Quote Link to comment Share on other sites More sharing options...
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