Kiddie Tax Question

[geekgirldany]

Grandparents invested in and sold stock for their grandchild. The 1099-B is under the child's name. (Child's parents are my clients).

Approximate Proceeds $15,000 and Cost around $11,000. A little interest and dividend. So there is $4,000 gain that will need to be reported.

Client tells me to put it on their return. CPA told grandparents to relay the info. In the meantime an extension was filed under the child's SS# and some money paid in with it.

So... from what I have read it looks like the Child (around 13 years old) will actually have to do an tax return with Form 8814. Is that correct?

I believe the grandparents more than likely misunderstood about reporting on parent's return because the CPA did file the extension in the child's name.

I've only done a couple of kiddie tax returns. I want to make sure I am right before I get started.

Also, if the tax return does have to be filed in the child's name... the parent can sign as guardian, correct?

Thank you for any help.
D

[ATSMAN]

You have to look at it both ways and make a decision. Since the child's return is extended it may be easier to do that than amend the parent's return!


A parent may be able to avoid having to file a tax return for the child by including the child's income on the parent's tax return. A parent can elect to do this if all of the following conditions are met:

At the end of the tax year the child was under age 19 or under age 24, if a full-time student
The child's interest and dividend income was less than $10,000 for the tax year
The child had income only from interest and dividends, which includes Alaska Permanent Fund dividends and capital gain distributions
No estimated tax payments were made for the tax year, and no prior tax year's tax overpayment was applied to the current tax year, under the child's name and social security number
No federal income tax was withheld from the child's income under backup withholding
The child is required to file a return unless the parent makes this election
The child does not file a joint return for the tax year
The parent is the parent qualified to make the election or files a joint return with the child's other parent

[Gary2]

So... from what I have read it looks like the Child (around 13 years old) will actually have to do an tax return with Form 8814. Is that correct?

Yes to having to do the return, no to 8814 (which would only be used if the income were claimed on the parents'). Use Form 8615. You'll need to have the parents' return to complete the 8615.

Also, if the tax return does have to be filed in the child's name... the parent can sign as guardian, correct?

A 13 year old can generally sign their own return. A parent can sign if a child is incapable of signing.

You have to look at it both ways and make a decision. Since the child's return is extended it may be easier to do that than amend the parent's return!
…
The child had income only from interest and dividends, which includes Alaska Permanent Fund dividends and capital gain distributions

"Capital gain distributions" mean only those reported on a 1099-DIV, so in this case, it cannot go on the parents' return, and must go on the child's. (Aside: Please include the source when cutting and pasting material.)

[geekgirldany]

Thank you both for responding.

Gary, I knew I probably had the form number wrong. Thanks for the correction.

I had read the rules about reporting on a parents return and it appeared that the 1099-B could not.
Thank you for the backup.

[Roland Slugg]

Gary2 has it right ... parts of ATSMAN's post are incorrect. In order for parents to report a child's income on the parents' return, the child's income must consist only of interest and dividends. The income in your case consists mostly of capital gains. Thus, the child must file his own return. Calculate the tax on form 8615.

Yes, a 13-yo should be able to sign his/her own tax return and will probably enjoy doing so. There is no minimum age for signing one's own return. Some parents, however, may prefer to sign their child's tax return in a case like yours, and I believe that is all right.

I'm curious, though, about a couple of the facts in the OP. First, you said the 1099-B form is in the child's name, but was it also issued using the child's SSN? If not, perhaps the GPs should be reporting that income on their own returns. What I'm getting at is: Whose money is it that the GPs have invested, and whose stock is it that the GPs are trading? Is it really the child's? Or is it their own? Was there a bona fide gift made by the GPs to the child?

Second, I take it the GPs' returns are prepared by someone else ... the CPA you referred to ... and that CPA prepared an extension for the child's return. On the one hand that was a nice thing to do, since he knew the child would have to file a return, but it also seems a little strange since the child is not his client. Perhaps he advised the child's parents or GPs that the child was going to have a filing requirement, and one of them asked the CPA to handle the extension.

In any case, if the parents (and now the child) were clients of mine, I would want to see the 1099-B form and see whose name and SSN are on it.

[FEDUKE404]

Child must file a tax return

The child definitely must file his/her own income tax return, likely also involving the use of Form 8615. (Things can really get messy if there are siblings also having to deal with Form 8615.)

So far as I recall, the parents can only report certain "income" on their own tax return and a stock disposition via Form 1099-B must go to the actual owner's income tax return.

FE

[geekgirldany]

First, you said the 1099-B form is in the child's name, but was it also issued using the child's SSN?

The grandparents, I assume, invested their own money into this account for the child. I do have the original 1099-B form and it is in the child's SSN... grandparent listed as cust. Grandparents thought they could put it on their tax return and pay the taxes. They could not so I guess their CPA did an extension for the child so at least the grandparents could pay the tax.

[Roland Slugg]

Hello GGD

Thanks for clarifying that. I assume that since the child is a minor, the brokerage account is a custodial one. Regarding the "Whose funds are these?" question, I'm sure it's safe to assume that the funds were, indeed, a gift from the GPs to the child. All-in-all I would say everyone has handled things very well up to this point, including the courtesy extension done by the GP's CPA.