Kids investment loss

[danirosner]

I sold some mutual funds for in my kids custodial trading account for a loss.  They also have bank accounts they received small dividend.  Should I be entering all those on my taxes since they are losses?  If so, do I just add them similarly as new entries.  I can import their 1099.  I'm using Deluxe but didn't see them asking about kids stuff.

[Mike9241]

no, since there are security sales in their custodial a/c's at a loss you do not get to claim them.   if the security losses exceed their investment income, to be able to use any loss carryovers in future years returns would have to be for them. 

do the kids have to file

they must file a return if any of the following apply.
• their unearned income was over $1,100.
• their gross income was more than $1,100, 

Gross income includes gains, but not losses, reported on Form 8949 or Schedule D.

[Hal_Al]

If his only income 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.

It doesn't apply in your case because there are capital gains/losses from the sale of securities. 

You do not need to file a tax return, for the kids, but you may want to anyway to document the capital loss carry forward to future years.  Even you don't file, you may want to prepare a return to properly calculate the amount of carry over.  If the $1100 filing threshold is not met, the entire amount usually carries forward. 

If your dependent child is under age 19 (or under 24 if a full time student), he or she must file a tax return for 2020 if he had any of the following:

1.          Total income (wages, salaries, taxable scholarship etc.) of more than $12,400 (2020).
2.          Unearned income (interest, dividends, capital gains, unemployment) of more than $1100.
3.          Unearned income over $350 and gross income of more than $1100
4.          Household employee income (e.g. baby sitting, lawn mowing) over $2100 ($12,400 if under age 18)
5.          Other self employment income over $432, including money on a form 1099-NEC

[Critter-3]

FYI ... the gross income >1100  includes the GROSS sales on the 1099-B ... so they will probably need to file at least a federal return.    

If you qualify   you can use one of  the 10 IRS FREE FILE options to file a fed & state return for free ... but you must log in thru the IRS site :

https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free

 For Filing Season 2021, you must make $72,000 or below to use one of the 10  IRS Free File partner offers.

If you choose the TT option then you can log in with your same user ID and agree to switch to the FREE FILE option then your progress will be preserved.  This will only work if you qualify for the TT option which is NOT the same for other IRS FREE FILE options...

To qualify for free 2020 federal and state tax returns with the IRS Free File Program delivered by TurboTax, you'll need to meet at least one of these requirements:

• A maximum 2020 adjusted gross income (AGI) of $39,000; or
• You qualify for the Earned Income Tax Credit (EITC); or
• You served as active duty military (including Reservists and National Guard) with a maximum 2020 AGI of $72,000 (you'll also need a military-issued W-2).

[Hal_Al]

@Critter-3 said  "the gross income >1100  includes the GROSS sales on the 1099-B"

I'm not sure that's right.  Per Pub 501 (page 2): "Gross income includes gains, but not losses, reported on Form 8949 or Schedule D".  https://www.irs.gov/pub/irs-pdf/p501.pdf

"Gross income" can be tricky, for example it does include gross rents rather than net rent.  

But, the IRS does get a copy of that 1099-B. Hopefully their computers are sophisticated enough to read the gain/loss on a basis reported category 1099-B and not send out notices. 

[Critter-3]

Failure to report stock sales is the #1 audit area so filing a quick return to CYA is best.   And the "gross" mentions gains but not losses means you cannot net the sales for the filing requirements and has not been changed in years to reflect the covered sales ... since the child can file for free it is best to just file the return.