Advertisement
taxes

What Parents Should Know About Taxes on Custodial Accounts

If your child turns 21 and is still a full-time student, the account can still get hit with taxes.

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.

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.

Advertisement - Article continues below

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.

Advertisement
Advertisement

Most Popular

11 Dividend-Paying Stocks You Should Think Twice About
dividend stocks

11 Dividend-Paying Stocks You Should Think Twice About

Dividend-paying stocks often can be a store of safety, but 2020 has been difficult on income equities. These 11 picks look like shaky plays despite th…
September 21, 2020
How To Buy a Roth IRA When You Make Too Much To Qualify For One
Roth IRAs

How To Buy a Roth IRA When You Make Too Much To Qualify For One

With their tax-free growth and tax-free withdrawals, Roth IRAs are a great deal — if you qualify. If you don’t, well, there’s still a way to get into …
September 23, 2020
Medicare Basics: 11 Things You Need to Know
Medicare

Medicare Basics: 11 Things You Need to Know

There's Medicare Part A, Part B, Part D, medigap plans, Medicare Advantage plans and so on. We sort out the confusion about signing up for Medicare --…
September 16, 2020

Recommended

When Is Amazon Prime Day 2020?
spending

When Is Amazon Prime Day 2020?

Circumstances beyond its control have forced Amazon to move its annual Christmas-in-July Amazon Prime Day blowout sale in 2020 to ... later. Is Oct. …
September 22, 2020
The Annuity With a Tax-Planning Twist
Financial Planning

The Annuity With a Tax-Planning Twist

A qualified life annuity contract helps retirees with guaranteed payments to last their entire lives.
September 21, 2020
Election 2020: Joe Biden's Tax Plans
taxes

Election 2020: Joe Biden's Tax Plans

With the economy in trouble, tax policy takes on added importance in the 2020 presidential election. So, let's take a look at what Joe Biden has said …
September 18, 2020
Most-Overlooked Tax Breaks for the Newly Divorced
tax deductions

Most-Overlooked Tax Breaks for the Newly Divorced

Filing taxes after a divorce can add yet another problem to an already long list of challenges. But here are some tips to make your return to single l…
September 18, 2020