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I have a client that wants to sell stock, avoid capital

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gain. I think I am...
I have a client that wants to sell stock, avoid capital gain. I think I am reading that you can gift the stock to a child by re titling it and then have the minor sell the stock at a lower capital gain rate. I am unclear on how the parent would sell the stock once it has been changed to the childs name and how to report it. And as long as it is not over $30,000(MFJ), I do not have to put it on on a gift tax return correct? Can you verify these steps for me please.
Submitted: 2 months ago.Category: Tax
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5/29/2018
Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 2 months ago
Chad EA, CDFA®, CFP®
Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional
Category: Tax
Satisfied Customers: 2,759
Experience: IRS Licensed Enrolled Agent, CDFA ® CFP ®, MBA
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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 2 months ago

The parents would gift the child the stock by re-titling the assets to the child. However, then the stocks are property of the child and the parents may not be able to sell the stock unless they have established a custodian account.

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 2 months ago

If the child's interest, dividends, and other unearned income total more than $2,100, part of that income may be subject to tax at the parent's tax rate instead of the child's tax rate.

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Customer reply replied 2 months ago
if the capital gain was 20000 and that is the only unearned income for the child, then after 2100 the rest is taxed at parents rate? Is this scenario true if a gift?
Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 2 months ago

To report the sale of the stock and to determine the tax, if the child owns the stock

Figure the child's tax on Form 8615 Tax for Certain Children Who Have Unearned Income, and attach it to the child's tax return when:

  1. The child's unearned income was more than $2,100
  2. The child meets one of the following age requirements:
    • The child was under age 18 at the end of the tax year
    • The child was age 18 but less than 19 at the end of the tax year and the child's earned income didn't exceed one-half of the child's own support for the year (excluding scholarships if the child was a full-time student), or
    • The child was a full-time student who was at least 19 and under age 24 at the end of the tax year and the child's earned income didn't exceed one-half of the child's own support for the year (excluding scholarships)
  3. At least one of the child's parents was alive at the end of the tax year
  4. The child is required to file a tax return for the tax year, and
  5. The child doesn't file a joint return for the tax year
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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 2 months ago

That is true of a gift to a child who has unearned income. Unearned Income over the amount of $2,100 will be taxed at the parents tax bracket.

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 2 months ago

Scenario's like what you have explained above is one reason for this regulation.

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 2 months ago

A parent may be able to avoid having to file a tax return for the child by including the child's income on the parent's tax return. To make this election, attach Form 8814, Parents' Election to Report Child's Interest and Dividends

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 2 months ago

Please let me know if you have any additional questions.

Thank you!

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Customer reply replied 2 months ago
If the parent were to retitle the stock and place in childs name would they have to be the custodian to sell the stock? I am unclear after the stock is retitled what happens.. I am trying to do this in the same year. Gift it to the son and then sell the stock at a lower capital gain rate. I just did the 8615 and have the tax liability for the child but need to know what happens after retitling.
Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 2 months ago

Q: If the parent were to retitle the stock and place in childs name would they have to be the custodian to sell the stock?

A: If the parents gift the stock to the child, the parents lose control of the stock. This is the case unless they create a custodial account such as a UTMA/UGMA

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 2 months ago

"I am unclear after the stock is retitled what happens.. "

The child owns the stock and the child would have to place the sell order, if the child decides to sell the stock. Selling the stock would not be the parents choice.

Then the child can either complete a tax return or if the child meets the criteria listed above you will complete Form 8615

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Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 2 months ago

Thank you!

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Customer reply replied 2 months ago
As a CFP which account would you recommend to achieve goal of gifting stock to a minor, retitiling, then selling in the same year? The UTMA, UGMA, Coverdale or a Trust account of some kind? If I understand correctly, I could as a custodial parent sell the stock that is in my childs name. But doesnt the UTMA require that the money be used for the minor? What constitutes those guidelines and how closely are they monitored? If I use the money for living expenses for the house the minor lives in, how is that viewed. Do you give a reasoning at the sale or provide receipts? What has been your experience as a CFP?
Tax Professional: Chad EA, CDFA®, CFP®, CERTIFIED FINANCIAL PLANNER ®, Professional replied 2 months ago

The guidelines for UTMA's or UGMA are generally set by the specific state you are reside in.

All of the above accounts will generally require the minor receive the benefits from the account. --Living expenses specifically for the child is generally an acceptable expense. --If the UTMA account is paying rent or the mortgage for a home occupied by many other people, then this expense would generally not be a fully acceptable expense.

Coverdale have annually contribution limits of approximately $2,000.

UTMA's and UGMA's generally do not have annual contribution limits and as you stated the minor will receive ownership of the funds when they reach 18 years old or older depending on your state. There are no IRS penalties on taking money out of an UGMA or UTMA account.

My experience.... You should first establish what financial goal you are trying to achieve. If your goal is to save on tax and fund your childs education, then I would suggest a 529 plan. Your state may allow for a state tax deduction

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