custodian on brokerage account for son

egmacrae · #1 (**permalink**) 01-28-2009, 12:10 PM

My wife and I sold stocks in which we were custodians for our son to help pay for his college. His social security number is the tax id number on this account. We received a 1099-B form. Do we report the gain on our taxes or does he on his. He is no longer our dependent.

TaxGuru · #2 (**permalink**) 01-29-2009, 03:32 AM

You would report the capital gain on your tax return. However, there may be some favorable tax treatment for your full time son attending college. Actually, your dependent child would enjoy what is known as a “limited standard deduction” on unearned income, or income derived from investments: interest, dividends, and capital gains.

For the tax year 2008, the great news is that first $900 of a dependent child's (who is below the age of 19, or 24 if a full-time student) investment income is tax-free, and the next $900 is taxed at the child's rate, which is 10%.

Therefore, if your son had a capital gain of say $1,800 in 2008 and didn’t have additional earned income, he would have to pay $90 in tax. But, any gain in excess of $1,800 would be taxed at the parents tax rate.

In fact, your son may not be suject to any tax at all if that income was in the form of long-term capital gains or qualified dividends . This is because for the tax years 2008 through 2010, the capital gains rates are zero for people in the two lowest tax brackets and it is quite possible that your son is in that bracket due to his low income as a full time student!

egmacrae · #3 (**permalink**) 01-30-2009, 02:42 PM

My son is no longer a dependent on our tax return and the brokerage account is under his social security number. How does that change things.

TaxGuru · #4 (**permalink**) 01-30-2009, 10:08 PM

In that case, your son will report all the capital gain transactions associated with stock trades on his personal tax return.

As such, these transactions are reported on Schedule D, Capital Gains and Losses schedule. Assuming these transactions yield a net gain, then your son might have to pay capital gains tax on the profit.

However, it is very possible that your son's earned income in 2008 might qualify him to be in the zero percentage tax rate for Capital Gains tax in 2008. In that case, he may not even be subject to any capital gains tax at all!