Ask Kim

Kiplinger

What Parents Should Know About Taxes on Custodial Accounts

Kiplinger.com

My daughter is about to turn 21 and will be able to control the custodial account we established for her years ago. Will she qualify for the 0% capital-gains rate if she sells shares after she has control of the account? She is in college, and my wife and I claim her as a dependent. --J.D., New Hartford, N.Y.

SEE ALSO: Ways to Give Money to Children

Even though your daughter can control the account at 21, she'll still be subject to the kiddie tax if she's a full-time student younger than age 24 and doesn't provide more than half of her own support with income from a job. With the kiddie tax, her unearned income (such as dividends, interest and capital gains) over $2,100 will be taxed at the parents' rate. For the first $2,100, your daughter would probably pay 0% long-term capital-gains tax. Only taxpayers in the lowest two brackets qualify for the 0% rate.

Your daughter should wait until she is 24 or supporting herself to sell most of the stock, recommends John Dundon, an enrolled agent in Englewood, Colo. At that point, the gains will be taxed at her own (likely lower) rate.

SEE ALSO: Our Guide to Kids and Money

Copyright 2016 The Kiplinger Washington Editors

More from Kiplinger.com

See more stories in this category

Back to Previous Page

;(

Sorry, this component is unavailable at this time.

Ask Kim

What to Do When Your Broker Goes Rogue

[QUESTION] My broker invested my money in a stock I had never heard of and we had never discussed....

A Tax-Friendly Way to Pay for School

[QUESTION]Are there any tax-advantaged ways to save for high school expenses?SEE ALSO: 10 Best College...

Distribution and Tax Rules for Inherited IRAs

My two brothers and I inherited a traditional IRA from my mother after she died last year. When do we...

You Still Have Time to Make an HSA...

[QUESTION]I had a high-deductible health insurance policy last year but don't have one this year. Can...

How to Get Money Back When You Turn in a...

[QUESTION]I'm about to turn in my leased Mazda. The lease specified a limit of 10,000 miles a year for...

Next Page >
Provided by Kiplinger