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Subject:  Re: Why Not Take Gains in UTMA? Date:  2/8/2013  1:30 AM
Author:  TMFPMarti Number:  117683 of 127753

You're confusing two things: filing requirement (which implies having to pay tax) and the threshold for "kiddie" tax rates. For 2012 if a dependent has nothing but unearned income the standard deduction is $950. Beyond that tax is due.

According to TurboTax for 2012, you are mistaken.

When I made a fake return for my daughter using the actual gains from her account, I entered a hypothetical fund sale that adjusted her unearned income just below & above $1900.

My dummy return was interest income, which is not subject to the special rate of zero, so that explains why I show tax and you don't. Sorry for the confusion. So, to sum up:

1. If a dependent has only unearned income the standard deduction for 2012 is $950. Above that amount the dependent must file a return.*

2. At $1900 of unearned income the kiddie tax rules kick in, and the dependent pays at the parent's rate.

3. If the dependent has only long-term cap gains and qualified dividends the dependent will pay zero tax up to $1900 of income even though a return may be required.

4. *In some cases the parent can report the child's income on the parent's return, but I've never been able to figure out why a parent would want to, and it cannot be done if Schedule D is involved.

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