Custodial traditing account for kids

[TaxTimeSK1]

We have two kids 10 and 13yrs old. We file taxes as married jointly. We are thinking about setting up a custodial brokerage account for them and have the following questions.

1. Can we transfer stocks directly from our brokerage account to theirs without selling them? I don't want to pay capital gains.

2. Assuming that we can transfer up to 36K per kid without paying gift tax. Is that right? 

3. Let's say I bought the stock for 1K and it appreciated to 10K. I transferred that 10K to the kid. If kid sells all the stock, would that 9K considered capital gain for him? 

4. Any trading we or the kid do in the custodial account and the gains out of it are taxed on kids or at parents tax rate? Let's assume that the dividend income is under 1K.

5. Can we still use that 36K limit for year 2024?

6. We see it as a way to gradually give them some money so that we can minimize the gift tax at some point. is that a good strategy? Any side effects of it like losing eligibility for collage scholorships etc?

Appreciate your help with these questions!

[DianeW777]

Here are the answers to your questions:

1. Yes, depending on the amount there could be gift tax.
2. Yes, that is correct due to the 'gift splitting' rules.
3. Yes, the child will receive the cost basis of the giver (any reinvested dividends after the gift would add to the cost basis of the child.
4. Yes, the income will be taxed on the child's return unless there are only interest and dividends below $2,600.
   1. IRS Topic 553
5. It is a calendar year for gift tax, the amount for 2025, is $19,000.
   1. Gift Tax FAQs
6. The best resource for this question is your legal council.  We cannot answer this for you.

[TaxTimeSK1]

Thanks  DianeW777!

Couple of follow up questions.

7. If they make 10K in interest and capital gains and file with parents using 8814. it seems they will be taxed at parent's current tax rate. Right?

8. Is there any advantage to filing taxes separately for kids?

9. Looks like we can't gift for 2024 now. Right?

10. If I go with TurboTax for my tax filing, how can I get such questions answered middle of the year?

11. I have a different question about my LLC. Should I create a new one or use this thread?

Thanks again!

[DianeW777]

Welcome back. Here are answers to your follow up questions. 

• (7) Yes, you are right. They will be taxed at the parent's tax rate.
• (8) It depends on what you want to see.  There is no tax advantage either way, and whether the child files or you include the income on your tax return it will be easy to identify your child's income should you need to.  For history, you may want to file their own, but it's completely up to you and your future needs. (Form 8814)
• (9) No, you are correct. A gift for 2024 is too late because the gift must be transferred by December 31st.
• (10) TurboTax has this forum open all year. You can post questions and they will be answered just like they are now.
• (11) I would create a new question thread for any questions about your LLC.