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I just found out that my 10 yr old's mutual fund distributed capital gains. (approx. $4000) What is the best way to handle this? Previously, I've added her interest income to our tax return. But, now, this is something different and completely new to me! Should I file a seperate return for her? I was unaware of the 14 yr old rule. I am the guardian of her mutual fund, it is in her name. Thanks in advance.
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I just found out that my 10 yr old's mutual fund distributed capital gains. (approx. $4000) What is the best way to handle this? Previously, I've added her interest income to our tax return. But, now, this is something different and completely new to me! Should I file a seperate return for her? I was unaware of the 14 yr old rule. I am the guardian of her mutual fund, it is in her name.

If the only capital gain she has is from the mutual fund distribution, you can still elect to include her income on your return. From you post I can't tell for sure, but it looks to me like you've maybe not been doing this correctly. The account should be under her SSN, and the income is hers. You deal with the "kiddie tax" issue on either Form 8615 attached to her return or Form 8814 attached to yours.

TMF ExRO
Phil Marti
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Hi TMF, thanks for your reply. The mutual fund is in my childs name under her SSN. I am the guardian. I was just surprised (taken off guard) when I learned of the mutual fund distribution, and especially when it dropped a huge percent on top of it too. Wow. I guess I'll have to wait and recoup most of the loss, and then I'm moving her money into individual stocks. I got the Motley Fool 2000 Tax Book and was reading about this situation yesterday while waiting for replies. This is the first time I've been faced with having to fill out a seperate return for her. Does that mean that I need the 1040 long form, not the short one? With the 8615 form attached? Thanks, jfkuzas
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Does that mean that I need the 1040 long form, not the short one? With the 8615 form attached?

Correct. The capital gain distribution requires the 1040.

TMF ExRO
Phil Marti
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