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Can I put $20,000 into each of my kids accounts, claim them as earning income and then open Roth's for them?

No. They have to actual earn income by providing a service in order to qualify for a Roth IRA. Assuming you are married, you and your wife can put $20,000 into an account for each child without triggering gift tax return filing requirements. This amount includes birthday gifts and other non-support related items.

Lets say they each earned $5,000 in their account next year. My daughter is 2 and my son only 6 months.

Well, at those ages, it's extrememly unlikely that they can provide any service for which they could be paid. If the $5,000 is dividend and interest income *only*, you have the option of reporting the income on your return or your childrens'. If it is profit from trading, your children will have to file individual returns.

My next question is for day trading. Because they are short term trades, do the losses just get subtracted from the gains? Example Gains $40,000, losses $26,000. Am I only responsible for income tax on the $14,000 gained?

Yes. Tax is assessed on the net gain. You are not responsible for the income tax, your children would be. After all, after you give it to them, it's their money. You may have another more serious problem. When you open accounts in their names, the accounts will most likely be custodial accounts. As custodian of their money, you have a fiduciary responsibility to prudently care for the assets. If you fail at day trading, as most day traders do, your children can years down the road sue you. This may seem ridiculous, but stranger things have happened. If you are successful, your children gain access to the funds at age 18 (generally) and can do whatever they want with the money -- so you may want to investigate something other than a custodial account. You might want to look at for more information on the pros and cons of different ways of transferring assets to minors.

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