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Greetings, Trickpony, and welcome. You wrote:

<<I wanted to set up a custodial account for my son.
I wanted to get started while he is still young...he is
currently 8 weeks old ;-)
I read some stuff on this site that said I should try to keep his unearned income below $650 until he is 14.

My question is, if I gift him stock and never sell it (at least until he is 14) and that stock doesnt give out dividends then will I have any income to worry about?>>


If there is no dividend income, then there will be no income at all until the stock is sold.

<<If not, then is there a limit as to how much I can give?>>

No, but if you wish to avoid gift taxes, then the gift should remain under $10,000. In this case, the value of the gift will be the market value of the stock on the date you transfer ownership of that stock.

<<Finally, the stock I want to give him is from an Employee Stock Purchase Plan where my employer let me buy at 85% of market price. I am assuming that I would have to pay the 15% at the time of selling not gifting.>>

Assuming you're fully vested in those shares on the date you buy them, then your basis in those shares is the price you paid for them plus the compensation income you must declare and pay taxes on when you bought them. Say the shares have a current market value of $100 each. You buy them at $85 each. In the year of purchase, you must declare $15 per share as compensation income, and you will be taxed on that amount. Your basis then becomes $100 per share. When you gift them to your son, he takes over that basis and your date of purchase. When he sells them, he declares the difference between his selling price and his basis as a captial gain or loss. So, you pay ordinary income taxes today on the difference between market value and your purchase price. Your son takes the shares at today's market value, and declares the capital gain or loss at sale based on the difference between his future selling price and the market value when you first bought the shares.

Regards..Pixy
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