Author Topic: UTMA and taxes  (Read 293 times)

PathtoFIRE

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UTMA and taxes
« on: February 07, 2018, 03:01:10 PM »
So my dependent minor son saved up his money, took cunning advantage of our offer a while back to match any investments he makes $ for $, and opened up a UTMA brokerage account at Vanguard, where I directed him to the Vanguard Target Retirement 2060 Fund Investor Shares. He received $29.14 in dividends in 2017 from this account.

I was about to pull the trigger and file my taxes since I have all of the necessary forms for all of our other accounts, but then I realized that I hadn't taken this account into consideration. I haven't received any forms yet, but it's a Vanguard brokerage account, and I'm hearing from others that the 1099-DIVs have not been finalized yet on these accounts.

Now my question is how do you all who have children with these accounts handle this tax-wise. I've read a little on kids and taxes, but admit it got me a little confused on when you should/need to have them file their own returns, etc. For full disclosure, he received no other earned or unearned income of any sort, yes I'm aware of 529s and we already utilize those, and while there are tax-optimal ways if handled in different ways with using UTMA/UTGAs this is his allowance that he's been saving since first grade (he refuses to spend on just about anything except for one Lego sets two years back) and he really wanted a Vanguard account like us.

Thanks for your help in advance.

MDM

  • Walrus Stache
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Re: UTMA and taxes
« Reply #1 on: February 07, 2018, 03:30:57 PM »
See Chart B on page 9 of 2017 Instruction 1040 - i1040gi.pdf.

I suspect you will like the result. :)

Did any of your son's money come from working (e.g., lawn mowing, refereeing, etc.) as opposed to, say, accumulated birthday gifts from grandparents and the allowance?  If so, that could go into a custodial Roth IRA....

PathtoFIRE

  • Bristles
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Re: UTMA and taxes
« Reply #2 on: February 08, 2018, 08:01:33 AM »
Thanks MDM, that chart gives me a very straightforward answer. No, he does not need to file a return. Interestingly for anyone else following along, Publication 929 (2017) goes into a little more detail with examples. Specifically, make sure to check out Chart C on the 1040 Instruction sheet below where MDM linked, as there are a few other situations where a dependent would have to file a return even if they didn't meet the various income thresholds detailed in Chart B. Also, as is pointed out in Publication 929, if the dependent had ANY federal tax withholding from earned income, they need to file in order to get their refund.

Publication 929 also detailed the situation in which you must include some of your child's unearned income on your own return, and that threshold starts at $2,100 of unearned income, so he/we are far away from that.

However, all of these rules refer to dependents on whom you claim an exemption. I wonder how the rules will change with the tax codes changes removing exemptions, since on the 1040 form it is under the exemption section where you officially list your dependents, their SSNs, and relationship.

MDM

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Re: UTMA and taxes
« Reply #3 on: February 08, 2018, 02:52:38 PM »
I wonder how the rules will change with the tax codes changes removing exemptions, since on the 1040 form it is under the exemption section where you officially list your dependents, their SSNs, and relationship.
Yes, the new tax law removes personal exemption amounts, but it does not remove dependency-affected things such as the Child Tax Credit, Head of Household filing status, Earned Income Tax Credit, etc.