1099-B UTMA

[hotchkiss]

I have 3 children all with UTMA brokrage accounts on Etrade which I am the Custodian of all three.  My father handles the trading of the securities for all 3 accounts.  Usually every year I print off each of their 1099-DIV and file them under my return, not sure if thats right or not but it's peanuts in the grand scheme of things.

I E-filed this year, which the FED and State both excepted.  Well, I wasnt aware my father sold all stocks for all 3 accounts, and low and behold there was a 1099-B for each of the kids accounts.  So later that day I filed an amended return including the 1099-B on my return, and owed the Fed a few k and the State around 600$.

Now after reading up on this becuase its under their names and the have no income, I need to file a return for each of my kids.  How do I proceed?  File anther amended return removing the 1099-B from my return and file each kid individually?

[JamesG1]

You may either:

• Report all of the children's income on IRS Form 8814 on your tax return, or
• Prepare individual 1040 tax returns for each child and amend your individual 1040 tax return to remove the children's income.  Each individual child's tax return may need to report IRS form 8815.

Parents use IRS Form 8814 to report their child’s income on their return, so their child will not have to file a return.  However, in this case, the tax paid on the child’s custodial account will be at your higher rate, not at the child's tax rate.

Because all of the assets that are held in a custodial account are the legal property of the child beneficiary, the income will be taxed at the child’s lower rate.  But the child's unearned income is subject to the IRS “kiddie tax”. The kiddie tax is used to tax a child’s capital gains and unearned income accumulated over the course of a tax year.  If the child's unearned income is more than $2,200, you will use IRS Form 8615 to figure the child's tax.

[hotchkiss]

Thanks for your reply.  couple questions.

It looks like option 1 of filing an 8814 on my return will  save me from filing a return for eah child, but I'll pay more on the back end since its at my rate.

Their income totals around 6k each so its definetly more than the 2200.  My question is after I file a 1040 for each child I'll have to also file a form 8815, and a form 8615?  I'm assuming Turbo tax will automatically wlk me through those forms if needed?  I never see the form side of my taxes only the easy walkthrough on the Turbotax.

Thanks.

[RaifH]

Form 8615 will be attached to each child's return to correctly calculate the taxes due on their capital gains. Nothing will change with your return. 

The first $1,100 for each child is tax-free. The next $1,100 for each child is taxed at their income rate, which would be 10% for short-term capital gains and 0% for long-term capital gains. The remainder of each child's income would be taxed at your tax rate. For TurboTax to calculate this, you will have to complete your tax return first because you will need your taxable income and filing status, so it is probably easier to complete your tax return first. 

Form 8814 is used if you include all the income on your own return. However, this can only be used if your children's income is solely from interest and dividends. Dividends include capital gains distributions, but that is separate from capital gains realized from the sale of stock. For more information on reporting your children's income, see this IRS tax topic.

[SteamTrain]

@hotchkiss    For the most part, I agree with @RaifH 

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Because of the 1099-B, you might need to amend yours, removing everything related to the children's income from your own tax return, if you haven't already, then file a separate tax return for each of them.

The option to include their interest, dividends,  on your own tax return is limited to 1099-INT and 1099-DIV types of income (and can include the cap gains in boxes 2 on a 1099-DIV).  Once any of the actual holdings/stocks/Mutual Funds are sold in a UTMA, for any one year, that goes to a full form 1099-B/8949 and the option to report them for that year on your own tax return goes away.

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Amending your own tax return again is likely to be a mess depending on how far along you are in the process.

1)  One should never amend a tax return until the original has been processed, and any refund issued, or balance due paid.  The original, if filed and accepted already, cannot be stopped or intercepted.....thus, there is no rush to amend.

2)  Did you actually file the first amended tax return already?  Hope not.  IF you haven't actually filed it yet, then all you need to do is continue to work on it again...but wait for your original refund/or pay the original's balance due first before filing the amended one. 

ANNNND....don't rush the amended one again....give yourself several weeks to a month or two to fully understand what needs to be done.