Harlan Lunsford <hnslunsford[at]bellsouth.net> wrote:

- quote -

I'm not near my software, but I recall the kiddie tax
instructions http://www.irs.gov/pub/irs-pdf/i8615.pdf
contains Line 5 worksheets that, when filled out as
requested, do combine parents and child's capital gains
income to tax child's capital gains income at the parent's
rates.

That being the case, I would assume the kiddie tax does
apply parent's rates for capital gains and qualified
dividends.

- quote -

I would not recommend a minor gift or give anything to
anyone.

But starting in 2008, the kiddie tax will apply to kiddies
who have outgrown their minor status buyt still pay kiddie
tax. So maybe this could work for them.

And as we now know, the writers of the new kiddie tax
legislation were farsighted enough to add a clause that
changes all instances of "minor" to "child" when applied to
kiddie tax.

--

ArtKamlet at a o l dot c o m Columbus OH K2PZH

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Harlan Lunsford <hnslunsford[at]bellsouth.net> wrote:

- quote -

Since these boys are all minors, the stock cannot be held in
their names alone -- someone must be named as "trustee" --
if I understand the Uniform Gifts to Minors Act correctly.
Probably the mother or father is such trustee. Regardless,
the trustee must act in the best interest of the child, not
the parents and the money cannot be used to meet parental
obligations.

It seems to me that a gift to either parent is not in the
best interest of the child. I don't know the remedies for
prohibited transactions, so I can't tell the full
consequences. However, it does seem to me that IRS is
likely to ignore such a gift. I also wonder if a broker or
transfer agent would make the necessary changes.

I wouldn't try this with one of my clients, I don't think.

Lanny K. Williams, CPA
Nawarat, Williams & Co., Ltd.
Income Tax Services for Expatriate Americans

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Harlan Lunsford wrote:

- quote -

Aside from the issue of how this impacts student aid, it
looks fine to me. You can't gift a loss, but you can gift
appreciated stock and the recipient can use his own losses
to offset that gain.

JOE

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We're all familiar with the reporting requirements of
interest and dividends for dependent children under the age
of 18 these days. However the requirement to use parents'
rates etc does not extend to capital gains. As a result
two of the three sons of a client had to pay tax on
dividends at parents rates and pay tax on capital gains on
sale of stock. For the record, these stocks were inherited
from a grandparent maybe ten years ago.

Parents file jointly, and in the past when father inherited
boocoos (a word formed from the french word "beaucoup") of
money, he went whole hog in the market, and after finally
realizing he was NOT cut out to be a market maven
(strangely, back in 2002!), wound up with one humongous
capital loss carryover. I mean this is one BIG loss
carryfoward which he may never use up.

So then, these three boys are teens and going to college
eventually, and their stock will be sold piecemeal as
needed.

What IF, the boys gave (not "gifted"; I don't like that old
Scottish term) the stock to their mother? Anything wrong
with this idea? You can see where I'm going with this, I'm
sure.

ChEAr$,
Harlan Lunsford, EA n LA

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