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Author: WAIOLA Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 120820  
Subject: Child's 1099-B Date: 2/1/2000 4:26 AM
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Last year my IRA manager advised me that I could reduce my taxes by withdrawing 1/2 of my 8yr old son's mutual fund (which was giving him dividends over $700) and invest the money in stocks like MSFT, AOL, DIS. I did this and now I've received a 1099-B for the $4000 I redeemed,as well as the normal 1099-DIV, from my son's mutual fund.
My question is how do I file the 1099-B for my son? Do I include it in my 1040 Section D, Capital Gains and Loses? Do I file a FORM 8615 (computation tax for investment of children under 14)? I'm not sure how to treat this as I thought that by reinvesting my son's monies into stocks under his name was suppose to wash this. Am I missing something here?
Sorry but my IRA manager passed away in the later part of last year, or I would've asked him. Can anyone help?
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Author: TMFJeanie Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26589 of 120820
Subject: Re: Child's 1099-B Date: 2/1/2000 10:53 AM
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I'm not sure how
to treat this as I thought that by reinvesting my son's monies into stocks
under his name was suppose to wash this.


Hi, Waiola. I'm aware of no law that allows us to sell one (profitable) investment in order to re-invest in another, without paying taxes on that sale. (Assuming this is a taxable portfolio and not a ROTH or other IRA).

Just guessing here, but maybe your advisor was trying to reduce the tax liability that is inherent in holding mutual funds. Even under-performing mutual funds distribute capital gains on which you must pay taxes every year. By re-allocating half of that investment into individual stocks, your son would not have to pay cap gains taxes on those investments unless and until he sold them. Of course,he would still be taxed on dividends that might be paid on some of those stocks, such as Disney.

So even though your son has to pay taxes on the profits from the fund sale this year, this move was apparently aimed at reducing tax liability going forward.

Perhaps a tax expert can chime in and explain this better than I can, but this is my understanding of your situation.

Jeanie (not a tax expert)

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Author: TMFTaxes Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 26655 of 120820
Subject: Re: Child's 1099-B Date: 2/1/2000 3:48 PM
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<<Last year my IRA manager advised me that I could reduce my taxes by withdrawing 1/2 of my 8yr old son's mutual fund (which was giving him dividends over $700) and invest the money in stocks like MSFT, AOL, DIS.>>

Ok...got it.

<< I did this and now I've received a 1099-B for the $4000 I redeemed,as well as the normal 1099-DIV, from my son's mutual fund.>>

Yup...and all of that information will have to be included in your son't individual income tax return for 1999. It's his money...it's his taxes. Now...there IS an option that you can use to report HIS earnings on YOUR tax return. You can read more about that in my series of articles on the "kiddie tax" in the Taxes FAQ area.

<<My question is how do I file the 1099-B for my son? Do I include it in my 1040 Section D, Capital Gains and Loses? Do I file a FORM 8615 (computation tax for investment of children under 14)?>>

Oops...sorry...I wasn't thinking there for a second. Since there were stock SALES involved...you have no choice. Your son will be required to complete his OWN return including Form 8615. So the sales will have to be on his return. You don't have the option of reporting them on your return.

<< I'm not sure how to treat this as I thought that by reinvesting my son's monies into stocks under his name was suppose to wash this. Am I missing something here?>>

When you sell, you have a taxable event. It makes no difference that you might have "reinvested" the money back into additional shares of stock. It's immaterial.

Hope this helps...
TMF Taxes
Roy


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