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Posted by Arthur Kamlet on June 5, 2007, 3:20 pm
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> We're all familiar with the reporting requirements of
> interest and dividends for dependent children under the age
> of 18 these days. However the requirement to use parents'
> rates etc does not extend to capital gains.
I'm not near my software, but I recall the kiddie tax
instructions http://www.irs.gov/pub/irs-pdf/i8615.pdf
contains Line 5 worksheets that, when filled out as
requested, do combine parents and child's capital gains
income to tax child's capital gains income at the parent's
rates.
That being the case, I would assume the kiddie tax does
apply parent's rates for capital gains and qualified
dividends.
> As a result
> two of the three sons of a client had to pay tax on
> dividends at parents rates and pay tax on capital gains on
> sale of stock. For the record, these stocks were inherited
> from a grandparent maybe ten years ago.
>
> Parents file jointly, and in the past when father inherited
> boocoos (a word formed from the french word "beaucoup") of
> money, he went whole hog in the market, and after finally
> realizing he was NOT cut out to be a market maven
> (strangely, back in 2002!), wound up with one humongous
> capital loss carryover. I mean this is one BIG loss
> carryfoward which he may never use up.
>
> So then, these three boys are teens and going to college
> eventually, and their stock will be sold piecemeal as
> needed.
>
> What IF, the boys gave (not "gifted"; I don't like that old
> Scottish term) the stock to their mother? Anything wrong
> with this idea? You can see where I'm going with this, I'm
> sure.
I would not recommend a minor gift or give anything to
anyone.
But starting in 2008, the kiddie tax will apply to kiddies
who have outgrown their minor status buyt still pay kiddie
tax. So maybe this could work for them.
And as we now know, the writers of the new kiddie tax
legislation were farsighted enough to add a clause that
changes all instances of "minor" to "child" when applied to
kiddie tax.
--
ArtKamlet at a o l dot c o m Columbus OH K2PZH
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