Ugh…Kiddie Tax! Any ideas to avoid this?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I'm not aware of any way around this, at least not at this point in the following year.

What's wrong with him paying his capital gains tax? Regardless, soon he won't be a dependent so this likely won't happen again.

This. I mean, sorry you can't figure out how to shelter your 17 year-old's windfall from taxes but oh well? He's still up 19k for doing literally nothing, I think it will work out in the end.

Because he'd likely pay nothing if he weren't a dependent.

I really wanted to hire this wonderful summer nanny who was highly recommended and my kids adore her. She wanted to be paid under the table because her dad makes 400k+. I understood the issue because it would be throwing her into a much higher tax bracket than she deserves to be in and leaving her with a large tax bill. I couldn't hire her though.

Because if he weren't a dependent he'd be living below the poverty line. Next.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I'm not aware of any way around this, at least not at this point in the following year.

What's wrong with him paying his capital gains tax? Regardless, soon he won't be a dependent so this likely won't happen again.

This. I mean, sorry you can't figure out how to shelter your 17 year-old's windfall from taxes but oh well? He's still up 19k for doing literally nothing, I think it will work out in the end.

He did do something. He spent his own time researching the investment and risked his capital. He should reap the rewards and if it wasn’t for the kiddie tax he would owe nothing in LTCG taxes. Just remember without the robust capital markets that the US has to fund investments, entrepreneurial efforts, etc this country would not be the economic powerhouse that it is. There would be substantially less taxpaying jobs to pay for SS, Medicare, and infrastructure as example. You must be a socialist.

You're right. Without the hard work and entrepreneurialism of 17 year olds like this, I wouldn't be employed. Really, shouldn't we be paying HIM taxes?

Clearly, you missed the point of the PP. This kid’s investment is just a drop in the ocean of the capital markets but it’s those capital markets in aggregate which make many businesses grow. You definitely must be a Democrat/Socialist since you don’t understand how that works.

[Anonymous]

Anonymous wrote:He can do his homework again and buy his next stock inside of a Roth. He should try to get enough earned income to get the max $7k and trade from there on.
I have only one stock inside my two Roths and my kid's Roth. It went up over 21% just today.
Don't get stuck on what happened. You are missing out growth today and tomorrow. S and P 500 has a new target out for this year. Government printed more money and I think it should run out before the year ends.
There's a nice small match offered for Roth by some companies.

Ummm…it is possible to have investments both inside and outside a Roth. And I don’t think the OP said anything about the kid’s Roth investments except that he funded his Roth with some of his earned income. He obviously wouldn’t be asking this question if the capital gain was in the Roth. Besides, he’d have to wait another 42 1/2 years to access those gains in the Roth without penalty (there are some exceptions to this rule). You are making a lot of assumptions. The kid could have other stocks both inside and outside the Roth but this particular stock was outside a Roth in a UTMA account and was bought out. The OP only made a post about this particular stock.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:I'm not aware of any way around this, at least not at this point in the following year.

What's wrong with him paying his capital gains tax? Regardless, soon he won't be a dependent so this likely won't happen again.

This. I mean, sorry you can't figure out how to shelter your 17 year-old's windfall from taxes but oh well? He's still up 19k for doing literally nothing, I think it will work out in the end.

He did do something. He spent his own time researching the investment and risked his capital. He should reap the rewards and if it wasn’t for the kiddie tax he would owe nothing in LTCG taxes. Just remember without the robust capital markets that the US has to fund investments, entrepreneurial efforts, etc this country would not be the economic powerhouse that it is. There would be substantially less taxpaying jobs to pay for SS, Medicare, and infrastructure as example. You must be a socialist.

He will reap the rewards. He earned 25k and after paying the cg tax will have 19k. Congrats! Saying "but he wouldn't owe anything if he wasn't a dependent" is like saying I wouldn't owe any US taxes if I was French and earned my money in France. True, but irrelevant!

Just pay the tax. Thinking people should pay the taxes they legally owe dies not make one a socialist. These are the actual current US tax laws.

Personally I wouldn’t mind paying taxes so much if the govt didn’t waste it on such a grand scale. There is so much waste and frivolous spending in the govt it’s mind boggling. And I would know, I worked for the govt for some years and the waste I saw bothered me as a taxpayer.

[Anonymous]

If you don't want to pay American taxes, move and renounce your citizenship.

[Anonymous]

Anonymous wrote:My 17 yo son invested some of the money he earned working various teenage jobs (lifeguard, ice cream shop) and invested it into a couple of stocks within his UTMA brokerage account. One of the stocks shot up and was bought out with an all cash deal by another company. He now has about a $25K long term capital gain for 2023. I originally thought he would not owe any taxes on that LT capital gain because he is still well within the 0% LT capital gain tax bracket due to his income (The 0% LTCG bracket for single filers is $44625 or less of taxable income). He would also not owe tax on his job income because he is below the regular income tax thresholds as well after the standard deduction. However, due to the kiddie tax rules he is being hit with about a $6K tax on this long term capital gain unearned income based on my (I file MFJ with my spouse) marginal tax bracket. This doesn’t seem fair since it’s his money not mine. Anyone know any legal tricks to get around this kiddie tax?

Don’t teach him to skirt the law.

He is almost 18 and owes this tax.

He can learn that, and what we get from our taxes (schools, roads, libraries, police and fire protection, restaurant inspectors. Accident investigators, national and local parks).

Teach him to read about the tax implications of investments, not to be Trump like and get others to support the social infrastructure you use everyday.

[Anonymous]

Anonymous wrote:

Anonymous wrote:What is the effect on your taxes if you don’t declare him as a dependent?

At 17 you get a $500 credit for him...but he can still be a dependent and file his own return

But that would be a lie.

He is not supporting himself.

[Anonymous]

That's too bad but he still made a lot of money.

[Anonymous]

If more people thought like you, there would not have been rescue workers out on the Pataspco River (after the collapse of the Key Bridge) within ten minutes.

Parents would be out in row boats looking for their missing children.

[Anonymous]

Anonymous wrote:If more people thought like you, there would not have been rescue workers out on the Pataspco River (after the collapse of the Key Bridge) within ten minutes.

Parents would be out in row boats looking for their missing children.

WTF?

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:What is the effect on your taxes if you don’t declare him as a dependent?

At 17 you get a $500 credit for him...but he can still be a dependent and file his own return

But that would be a lie.

He is not supporting himself.

Right that is why he is still a dependent on his parents return. Maybe he eeds to get withholding back. He has to file on his own. Also, just because you can be a dependent does not mean you have to be. I do not claim my kids because they can claim tuition tax credits that I earn to much to claim.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:What is the effect on your taxes if you don’t declare him as a dependent?

At 17 you get a $500 credit for him...but he can still be a dependent and file his own return

But that would be a lie.

He is not supporting himself.

Right that is why he is still a dependent on his parents return. Maybe he eeds to get withholding back. He has to file on his own. Also, just because you can be a dependent does not mean you have to be. I do not claim my kids because they can claim tuition tax credits that I earn to much to claim.

The kiddie tax applies to everyone under 18 and full-time students under age 24. My 19-year son has a large UTMA and I'd love to recognize up to $45k a year in cap gains at the zero rate but it isn't legal since he is a full-time student. This is the case even if we don't claim him as a dependent. The tuition tax credits have different rules than the kiddie tax.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:What is the effect on your taxes if you don’t declare him as a dependent?

At 17 you get a $500 credit for him...but he can still be a dependent and file his own return

But that would be a lie.

He is not supporting himself.

Right that is why he is still a dependent on his parents return. Maybe he eeds to get withholding back. He has to file on his own. Also, just because you can be a dependent does not mean you have to be. I do not claim my kids because they can claim tuition tax credits that I earn to much to claim.

The kiddie tax applies to everyone under 18 and full-time students under age 24. My 19-year son has a large UTMA and I'd love to recognize up to $45k a year in cap gains at the zero rate but it isn't legal since he is a full-time student. This is the case even if we don't claim him as a dependent. The tuition tax credits have different rules than the kiddie tax.

This is one reason why, except for the very wealthy who will be subject to the estate tax, it's better to invest in your own name and let your kids inherit with stepped up basis.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:What is the effect on your taxes if you don’t declare him as a dependent?

At 17 you get a $500 credit for him...but he can still be a dependent and file his own return

But that would be a lie.

He is not supporting himself.

Right that is why he is still a dependent on his parents return. Maybe he eeds to get withholding back. He has to file on his own. Also, just because you can be a dependent does not mean you have to be. I do not claim my kids because they can claim tuition tax credits that I earn to much to claim.

The kiddie tax applies to everyone under 18 and full-time students under age 24. My 19-year son has a large UTMA and I'd love to recognize up to $45k a year in cap gains at the zero rate but it isn't legal since he is a full-time student. This is the case even if we don't claim him as a dependent. The tuition tax credits have different rules than the kiddie tax.

This is one reason why, except for the very wealthy who will be subject to the estate tax, it's better to invest in your own name and let your kids inherit with stepped up basis.

If you were doing something like regular mutual funds the child could just hold them until they graduate and get a job and then sell them and save on the capital gains tax assuming their first job isn't super high paying. OP's situation is kind of different because there was a cash out merger.

[Anonymous]

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