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Author: ORA100 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Custodial Account/Capital Gain Date: 9/26/2012 2:38 PM
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I have two kids with custodial accounts and I recently made some changes to the accounts and generated some Capital Gains. I am married and filing jointly. I am trying to see how these will be taxed. I will give one example and figure out my second son. I generated LTCG of $6439.62 and STCG of $232.71. In addition he has a Capital Loss Carryover of $610. He will be 17 this year and as of right now he has no other income - he may get a part time job after football season and may have a few hundred dollars of income. Thank you very much for the help.

Doug
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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116669 of 121061
Subject: Re: Custodial Account/Capital Gain Date: 9/26/2012 3:03 PM
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I have two kids with custodial accounts and I recently made some changes to the accounts and generated some Capital Gains.

OK.

I am married and filing jointly.

Irrelevant. Your kids will file their own returns for the activity in the custodial accounts.

I am trying to see how these will be taxed. I will give one example and figure out my second son. I generated LTCG of $6439.62 and STCG of $232.71. In addition he has a Capital Loss Carryover of $610.

The current year transactions will start on Form 8949 and flow through to his schedule D, where the capital loss carryover will join the party.

He will be 17 this year and as of right now he has no other income - he may get a part time job after football season and may have a few hundred dollars of income.

Then it sounds like may have no tax. His standard deduction will cover the STCG (just barely), and the long term gain will be taxed in a 0% bracket. If he does work and have a few hundred dollars, that will also be covered by his standard deduction.

Thank you very much for the help.

You're welcome.

And be aware that I've only commented on Federal taxes. If you are in a state with an income tax, he may or may not have to pay some state tax.

--Peter

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Author: Wradical Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116671 of 121061
Subject: Re: Custodial Account/Capital Gain Date: 9/26/2012 3:43 PM
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I agree with Peter's remarks, EXCEPT that it seems to me that the son is subject to the Kiddie Tax (Form 8615), so the tax rate on the LTCG won't necessarily be zero, if the parents are above the 15% bracket.

OR am I missing something? That's happened before, too.

Bill

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116672 of 121061
Subject: Re: Custodial Account/Capital Gain Date: 9/26/2012 4:03 PM
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OR am I missing something?

Nope.

Egg, meet face.

At least my annual kiddie tax reminder wasn't on a paying customer this year.

--Peter

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Author: ORA100 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116679 of 121061
Subject: Re: Custodial Account/Capital Gain Date: 9/27/2012 11:13 AM
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Peter and Bill - Thanks for the reply. So for my example I generated LTCG of $6439.62 and STCG of $232.71. In addition he has a Capital Loss Carryover of $610. So I asume the capital loss of $610 will decrease the LTCG to $5829.62 and have the STCG of $232.71. Would these be combined for a Capital Gain of $6062.33? The first 950 is his standard deduction which reduces the CG to 5112.33. The next 950 is taxed at the childs rate - is that 0% or 10%? That reduces the Capital Gain to 4162.33 Would this then be taxed at the parents capital gain rate - either 0% if the parents taxable income is less than 70,700 or 15% if the parents taxable income is over 70,700 or a combination of 0% for part and 15% for part if it takes them over 70,700?

Thanks for the great help.

Doug

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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116681 of 121061
Subject: Re: Custodial Account/Capital Gain Date: 9/27/2012 12:47 PM
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The next 950 is taxed at the childs rate - is that 0% or 10%?

Its in the 10% bracket for ordinary income. But since it's a LTCG, it gets taxed at the appropriate LTCG rate of 0%. Clear as mud?

Would this then be taxed at the parents capital gain rate - either 0% if the parents taxable income is less than 70,700 or 15% if the parents taxable income is over 70,700 or a combination of 0% for part and 15% for part if it takes them over 70,700?

You've got the right process. I didn't check the 70,700 figure itself, but I think it's in the right ballpark for the beginning of the 28% bracket for a married couple filing jointly.

--Peter

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Author: ORA100 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 116683 of 121061
Subject: Re: Custodial Account/Capital Gain Date: 9/27/2012 2:19 PM
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Peter - Thanks for the great help. I really appreciate it.

Doug

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