Any special reporting for custodial account in tax return

[pius_ttax]

Hello -

I opened a UTMA Custodial account for my son and deposited cash from me and my wife (15k per person) last year - 2021. The account generated a total interest of 9 cents and I see a 1099 form generated in the account. I plan to add this account interest in the interest income section of our (mine and my wife's) married filing jointly return where we claim my son as a dependent (he does not have any other income). There is no other income generated in that custodial account and I have not invested the money yet. Am I doing the tax return filing correctly or is there any additional filing requirement for having a custodial account?

Thanks,

[PattiF]

If your child's only income is unearned and doesn't exceed $1,100, it doesn't need to be reported. No return is needed for the child.

But, you also don't need to file a return for nine cents. The IRS guideline is to round amounts to whole dollars on a return. This amount would be rounded to zero and there is no requirement to file a return for these few cents. The IRS will not be looking for this amount to be reported. 

Here is an IRS Topic No. 533  on a Child's Investment and Other unearned Income when the income from the UTMA is higher.

[pius_ttax]

Thank you very much. I was doubtful if I should report the 9 cents and your answer confirmed it. I will skip it entirely in the return.

Thanks again,

[pius_ttax]

Hello again - 

I am in the process of preparing the tax return for tax year 2023 and I see my child's custodial account generated $400 in interest. I am confused on whether this needs to be included in my return or if there is any filing requirement for him separately. Can you please help clarify ?

Thanks in advance.

[RobertB4444]

Your child has unearned income below $1,250 so they are not required to file a return.

Here is an article on when your child needs to file.

@pius_ttax 

[pius_ttax]

Sorry - Just wanted to reconfirm - I dont need to include this amount in my return either correct?

Thanks!

[MonikaK1]

Correct; if the 1099 is issued in your child's SSN, and the interest income amount is less than $2,500, you don't report the income on your return, and if it's less than $1,250, your child doesn't need to file a return. If it's between $2,500 and $12,500, you can elect to report it on your return as explained in IRS Topic 553.

A minor who may be claimed as a dependent has to file a return once their income exceeds their standard deduction. For tax year 2023 this is the greater of $1,250 or the amount of earned income plus $400 up to the full standard deduction of $13,850.

The IRS also has a cutoff level for "unearned income," such as dividends or interest. If your child's income is above this year's level, they need to file; below that point, they aren't required to file a tax return. The amount for 2023 is $1,250.

See this TurboTax tips article for more information.

[pius_ttax]

Thank you so much for the detailed answer!

One last question - my child also received an overseas residential property as gift. There is no income on it currently. From research in this forum, I see that he needs to file form 3520 to report the gift as its value exceeds 100k. But does this also necessitate his own return filing as well? I don't see any mention of gifts under unearned income (and I think gift is definitely not earned - please correct if I am wrong) from the IRS documentation that I followed from either here Who must file  or here  (which I found following topic 553) Tax for Certain Children Who Have Unearned Income 

I am assuming we just file form 3520 with his details. Can you please confirm if a tax return is also required for him?

Thanks so much.

[KrisD15]

Correct. 

The gift is not a taxable event. 

Form 3520 simply acknowledges the transaction. 

[pius_ttax]

Thank you for the answer. Just to reconfirm, I don't file a tax return for him - just the form 3520 with his details. Correct?

Thanks again.

[pius_ttax]

Good morning - Just want to reconfirm what you meant in the answer

So I won't be filing a tax return for my child correct?

Sorry for reconfirming and thanks a lot for your help!

[Vanessa A · Accepted solution]

That is correct.  You will not be filing a tax return for your child due to this gift.