Custodial Account Question (Do I need to file a return if we sell a stock/mutual fund in a custodial)

[boss89]

I had a previous post regarding if I was required to attach my childrens 1099 for their custodial to my return or if I would need to file their own seperate return and it sounded like as long as their unearned income was less than $1,100 and they didn't have earned income that I didn't need to do anything. 

I was doing some more reading and came across this article that stated the following:  https://finance.zacks.com/pay-capital-gains-taxes-custodial-accounts-10617.html

If your child has enough in savings to trigger kiddie tax liability, you'll be paying his taxes at your rate. With this in mind, filing a separate return for your child just to save a few hundred dollars of taxes on her first couple thousand dollars of income may seem like a big hassle. If you don't want to bother with filing a separate return for her, you may not have to. Generally, as of 2013, as long as your child's total income is less than $9,500 and your child only has income from interest, dividends or capital gains distributions, you can include your child's income on your return. However, if your child has capital gains income from trading assets, as opposed to coming from distributions from mutual funds and other investments, you'll need to file a separate return.

We have our childrens custodials invested in a mutual fund and I was thinking about selling the fund and going to cash for our kids so I don't have to deal with filing returns in the future. When I sell their fund that would be considered a trade or sale and if it wasn't held for a year it would be a short term capital gain I believe. If I hold for over a year that would be a long term capital gain. My question is if I sell that fund does that mean I have to file a return for my child regardless if the earning were less than $1,100 because its considered a trade of assets? They have no earned income and their unearned income is from interest, dividends and distributions from the mutal fund (long and short) but I haven't held the fund for a year yet. Thank you in advance.

[Hal_Al · Accepted solution]

Q. if I sell that fund does that mean I have to file a return for my child regardless if the earning were less than $1,100 because its considered a trade of assets?

A. No. The $1100 rule still applies regardless of whether the unearned income is from sale of assets or  interest, dividends or capital gains distributions.  All the asset sale changes is you ability to file your kids income on your own return*.

 "I was thinking about selling the fund and going to cash for our kids so I don't have to deal with filing returns in the future."  Not a good reason.  You could use the TurboTax Free file edition.  

Here's something you may want to consider:  https://www.merrilledge.com/ask/college/can-you-transfer-funds-from-529-plans

*If the child's only income (including  custodial accounts) is from interest and dividends, Alaska PFD or capital gains distributions shown on a 1099-DIV, there is a provision for entering it on your return, using form 8814. 

[boss89]

I appreciate the response. I had already gone ahead with the transaction. I really like to keep things simple on my taxes. I don't want to have to continually check the kiddie tax rules and the deductions for my kids two small custodial accounts. It's not worth the hassle to me at the time. Maybe in the future I will change my mind. Thank you.