Filing taxes as custodian for UTMA account

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jsmoove123
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Joined: Sun Oct 22, 2017 12:01 am

Filing taxes as custodian for UTMA account

Post by jsmoove123 » Sat Feb 16, 2019 2:50 pm

I have a young child with an UTMA invested in a few stocks, and me as custodian. This account has $38 in qualified dividends, and $40 overall in dividends. I understand that with unearned income under $1050, I will not need to file a tax return. However, I want to make sure that I am not losing out tax-wise. Am I correct to assume that the basis will be increased by the amount of the dividends?

As a related question, if I were to sell and rebuy in a Tax-Gain Harvesting maneuver, to harvest say $500, would/should I file a tax return for this?

Thanks!

Gill
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Re: Filing taxes as custodian for UTMA account

Post by Gill » Sat Feb 16, 2019 3:05 pm

Yes, if you are reinvesting dividends the basis will be increased by the amount reinvested.
Gill
Cost basis is redundant. One has a basis in an investment | One advises and gives advice | One should follow the principle of investing one's principal

Topic Author
jsmoove123
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Joined: Sun Oct 22, 2017 12:01 am

Re: Filing taxes as custodian for UTMA account

Post by jsmoove123 » Sat Feb 16, 2019 4:57 pm

Thanks, and just to confirm, every time I do a tax-gain harvest, I should file a return?

Grt2bOutdoors
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Re: Filing taxes as custodian for UTMA account

Post by Grt2bOutdoors » Sat Feb 16, 2019 5:06 pm

jsmoove123 wrote:
Sat Feb 16, 2019 4:57 pm
Thanks, and just to confirm, every time I do a tax-gain harvest, I should file a return?
Yes.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

mega317
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Re: Filing taxes as custodian for UTMA account

Post by mega317 » Sat Feb 16, 2019 5:13 pm

What? This thread is blowing my mind. With all these numbers less than $1050 why does OP need to file? Guess I need to reread some forms and threads this year.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

kaneohe
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Re: Filing taxes as custodian for UTMA account

Post by kaneohe » Sat Feb 16, 2019 5:29 pm

"Single Dependents
Under 65 and not blind
You must file a return if any of the following apply.
1. Your unearned income was over $1,050.
2. Your earned income was over $12,000.
3. Your gross income was more than the larger of —
a. $1,050, or
b. Your earned income (up to $11,650) plus $350."

"In this chart, unearned income includes taxable interest, ordinary dividends, and capital gain distributions. It also includes
unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of unearned income
from a trust. Earned income includes salaries, wages, tips, professional fees, and taxable scholarship and fellowship
grants. Gross income is the total of your unearned and earned income."

In the olden days (before covered shares) folks who did not report tax gain harvesting ,even below the $1050 limit, were often asked
to explain their situation. Ex: you sold $2K of shares for $500 gain. If you didn't report, all IRS saw was the $2K gross sale. With no basis info available, they assumed the worst and believed you could have gains of $2K and asked you to explain.

Now that cost basis is available for newer shares they should be able to determine what your gains were and whether you exceeded the
$1050 filing threshold........so not sure if you need to file if your gains are < the filing threshold. Certainly safe to do so.

Grt2bOutdoors
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Location: New York

Re: Filing taxes as custodian for UTMA account

Post by Grt2bOutdoors » Sat Feb 16, 2019 6:20 pm

mega317 wrote:
Sat Feb 16, 2019 5:13 pm
What? This thread is blowing my mind. With all these numbers less than $1050 why does OP need to file? Guess I need to reread some forms and threads this year.
The question was "should I file", not do I "need to file". It's a good idea to file, for the OP to keep track of the new basis (even if Vanguard does it for you) and as a backup in case of future questions from IRS on cost basis when minor now turned adult goes to sell.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

dbr
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Re: Filing taxes as custodian for UTMA account

Post by dbr » Sat Feb 16, 2019 6:33 pm

It is not necessarily a bad idea to file from the get-go so there is a record of exactly what has gone on and so that the actual beneficiary of the gift has a starting place to file their own taxes.

Topic Author
jsmoove123
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Re: Filing taxes as custodian for UTMA account

Post by jsmoove123 » Sat Feb 16, 2019 7:35 pm

Sounds like it's at the least, a good idea to file if I am doing tax gain harvesting. For dividends received (for which I'm not mandated to file), would it be a "good idea" too, or unnecessary for cost basis/accounting purposes?

erictiger
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Re: Filing taxes as custodian for UTMA account

Post by erictiger » Sat Feb 16, 2019 8:17 pm

My 18-year old son had $1007 interest and dividends in 2018. If he does not need to file his own tax return, do I need to add his interest/dividends to my tax return as I claim him as dependent? 2018 was the first year that he had bank account and Vanguard Brokerage account.

Grt2bOutdoors
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Re: Filing taxes as custodian for UTMA account

Post by Grt2bOutdoors » Sat Feb 16, 2019 8:40 pm

jsmoove123 wrote:
Sat Feb 16, 2019 7:35 pm
Sounds like it's at the least, a good idea to file if I am doing tax gain harvesting. For dividends received (for which I'm not mandated to file), would it be a "good idea" too, or unnecessary for cost basis/accounting purposes?
This is what I do with the UTMA I'm custodian for: each year, I file and include any dividends, interest and capital gains/losses incurred during the year. I'm not mandated to file, but as I said in an earlier post, its a way of proving to IRS in unlikely event (one never knows) of any future questions that basis is high and taxable amounts are much lower. Dividends received, if reinvested in the fund, increases your cost basis - I would include it in your tax return. Vanguard keeps a running tally of the cost basis, so that is all well and good. I also keep a copy of the filed tax return(s) so that owner will know come adulthood, what is the basis and what is the actual taxable amount.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

kaneohe
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Re: Filing taxes as custodian for UTMA account

Post by kaneohe » Sun Feb 17, 2019 12:05 am

erictiger wrote:
Sat Feb 16, 2019 8:17 pm
My 18-year old son had $1007 interest and dividends in 2018. If he does not need to file his own tax return, do I need to add his interest/dividends to my tax return as I claim him as dependent? 2018 was the first year that he had bank account and Vanguard Brokerage account.
https://www.thebalancecareers.com/do-mi ... ax-2085603

Sounds like no filing may be necessary;

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