LT Capital Gains - when to file

[gguerrero61]

How does LT capital gains factor into determining if you need to file a tax return? My 20 year old, who is a college student and we claim as a dependent, will make approx $2k in earned income this year but will realize $2,500 in long term capital gains as a result of a sale of stock in his brokerage account. Will he need to file a tax return based on the above?

[Bsch4477]

For 2023 tax year unearned income (like from investments or trusts) of at least $1,250 for a dependent required filing a tax return. 

[VolvoGirl]

Yes.  And he would need to file to get back any withholding taken out.

Filing requirements for a dependent
https://ttlc.intuit.com/community/children-dependents/help/do-i-need-to-file-my-own-taxes-if-i-m-a-d...

You may have to pay the Kiddie Tax.  I don't know how that all works.  The Kiddie Tax is on unearned income over $2,500 (2023).  Turbo Tax article
https://ttlc.intuit.com/turbotax-support/en-us/help-article/small-business-processes/2021-kiddie-tax...

[rjs]

The kiddie tax threshold for 2024 is $2,600, so your son will be close to it. He will have to file a tax return in any case. When you prepare his 2024 tax return you should go through the Child's Income topic in TurboTax to see if he has to pay kiddie tax. You do that in his tax return, not yours.

[Mike9241]

when filing for 2024, if you use online, you'll need to create a separate account for his return. online only allows one federal return per account. doing a second in the same account completely deletes the first one. a unique user ID is required but the same email can be used for up to 5 accounts.

for online the premier version will be needed to report capital gains 

however, any version can be used in you use a desktop product 

[Hal_Al]

Yes, the $2500* LT capital gain (unearned income) will trigger a filing requirement for your student-dependent.  If the gain (plus any other unearned income like interest and dividends) is less than $2600, the kiddie tax (form 8615) will not be triggered.   He will not owe any tax**, but still has to file. TurboTax (TT) can handle this, but not in the free edition.

*In his case, rule #3 applies.

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 2023 if he had any of the following:

1.          Total income (wages, salaries, taxable scholarship etc.) of more than $13,850 (2023).
2.          Unearned income (interest, dividends, capital gains, unemployment, taxable portion of 529 distribution) of more than $1250 (2023).  
3.          Unearned income over $400 and gross income of more than $1250 (2023)
4.          Household employee income (e.g. baby sitting, lawn mowing) over $2600 ($13,850 if under age 18)
5.          Other self employment income over $432, including money on a form 1099-NEC

**The standard deduction (earned income + $400) wipes out his wages and the LTCG is taxed at 0%, if the kiddie tax does not apply.

[TomD8]

Note that, regardless of income, a household employee must file a tax return if he/she owes Medicare or Social Security tax on wages received from an employer who did not withhold these taxes.