19 yr old college student - does Kiddie tax apply if financially independent via gift from parents?

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Topic Author
opus360
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19 yr old college student - does Kiddie tax apply if financially independent via gift from parents?

Post by opus360 »

Asking for a friend here.

His kid does not qualify for financial aid that is loan free (any financial aid has to be paid back). He is thinking of giving appreciated securities (stock) to his 19 year old kid, who is in college. His logic being the long-term capital gains tax rate for single is zero up to $40,400. So, he gives him appreciated securities. Kid does not have to pay taxes on it. Kid then becomes self sufficient via the gift and does not have to depend on parents' support. Will kiddie tax apply in this case or not?
Last edited by opus360 on Thu Jun 10, 2021 3:15 pm, edited 1 time in total.
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gobel
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Re: 19 yr old college student - does Kiddie tax if financially independent via gift from parents?

Post by gobel »

Student would need earned income > 50% of support to avoid kiddie tax (does not actually have to spend this money on support tho).

If student spends own money on > 50% of support (whether earned or unearned) then they can at least file as independent, and get the whole 12.4k standard deduction, a bit better than the usual 1.1k.
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opus360
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Re: 19 yr old college student - does Kiddie tax if financially independent via gift from parents?

Post by opus360 »

gobel wrote: Thu Jun 10, 2021 2:09 pm Student would need earned income > 50% of support to avoid kiddie tax (does not actually have to spend this money on support tho).

If student spends own money on > 50% of support (whether earned or unearned) then they can at least file as independent, and get the whole 12.4k standard deduction, a bit better than the usual 1.1k.
Thanks. These tax laws are too complicated.

Just to clarify, a 19-24 year old college student then could file as independent single on federal tax return, yet at the same time, the parents are subject to kiddie tax.
123
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Re: 19 yr old college student - does Kiddie tax if financially independent via gift from parents?

Post by 123 »

opus360 wrote: Thu Jun 10, 2021 1:51 pm ...He is thinking of giving appreciated securities (stock) to his 19 year old kid, who is in college. His logic being the long-term capital gains tax rate for single is zero up to $40,400. So, he gives him appreciated securities. Kid does not have to pay taxes on it....
Just a note: The value of the gift (the current value of the appreciated securities) is limited to $15,000, unless the giver wishes to file a gift tax return. The giver's basis in the gift is not relevant to the value of the gift for purposes of the $15,000 limit.
The closest helping hand is at the end of your own arm.
pshonore
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Re: 19 yr old college student - does Kiddie tax if financially independent via gift from parents?

Post by pshonore »

opus360 wrote: Thu Jun 10, 2021 2:18 pm
gobel wrote: Thu Jun 10, 2021 2:09 pm Student would need earned income > 50% of support to avoid kiddie tax (does not actually have to spend this money on support tho).

If student spends own money on > 50% of support (whether earned or unearned) then they can at least file as independent, and get the whole 12.4k standard deduction, a bit better than the usual 1.1k.
Thanks. These tax laws are too complicated.

Just to clarify, a 19-24 year old college student then could file as independent single on federal tax return, yet at the same time, the parents are subject to kiddie tax.
No, the kid is subject to the kiddie tax and most of his unearned income (cap gains, etc) will be taxable at the parents rate.
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opus360
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Re: 19 yr old college student - does Kiddie tax if financially independent via gift from parents?

Post by opus360 »

123 wrote: Thu Jun 10, 2021 2:42 pm Just a note: The value of the gift (the current value of the appreciated securities) is limited to $15,000, unless the giver wishes to file a gift tax return. The giver's basis in the gift is not relevant to the value of the gift for purposes of the $15,000 limit.
True. In their case, it will be $30,000 limit, as both parents can do the gift.
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opus360
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Re: 19 yr old college student - does Kiddie tax if financially independent via gift from parents?

Post by opus360 »

pshonore wrote: Thu Jun 10, 2021 2:42 pm
opus360 wrote: Thu Jun 10, 2021 2:18 pm
gobel wrote: Thu Jun 10, 2021 2:09 pm Student would need earned income > 50% of support to avoid kiddie tax (does not actually have to spend this money on support tho).

If student spends own money on > 50% of support (whether earned or unearned) then they can at least file as independent, and get the whole 12.4k standard deduction, a bit better than the usual 1.1k.
Thanks. These tax laws are too complicated.

Just to clarify, a 19-24 year old college student then could file as independent single on federal tax return, yet at the same time, the parents are subject to kiddie tax.
No, the kid is subject to the kiddie tax and most of his unearned income (cap gains, etc) will be taxable at the parents rate.
Thanks. I was wondering about that. So, in this case, athe savings will come only from the 12.4k standard deduction over the usual 1.1k.
oldfatguy
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Re: 19 yr old college student - does Kiddie tax if financially independent via gift from parents?

Post by oldfatguy »

opus360 wrote: Thu Jun 10, 2021 1:51 pm Asking for a friend here.

His kid does not qualify for financial aid that is loan free (any financial aid has to be paid back). He is thinking of giving appreciated securities (stock) to his 19 year old kid, who is in college. His logic being the long-term capital gains tax rate for single is zero up to $40,400. So, he gives him appreciated securities. Kid does not have to pay taxes on it. Kid then becomes self sufficient via the gift and does not have to depend on parents' support. Will kiddie tax apply in this case or not?
Just to clarify, since your post references financial aid, the concept of "independence" is different for financial aid than it is for taxes: https://studentaid.gov/apply-for-aid/fa ... dependency

Perhaps your friend already understands this, but I thought it worth mentioning.
pshonore
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Re: 19 yr old college student - does Kiddie tax if financially independent via gift from parents?

Post by pshonore »

opus360 wrote: Thu Jun 10, 2021 2:49 pm
pshonore wrote: Thu Jun 10, 2021 2:42 pm
opus360 wrote: Thu Jun 10, 2021 2:18 pm
gobel wrote: Thu Jun 10, 2021 2:09 pm Student would need earned income > 50% of support to avoid kiddie tax (does not actually have to spend this money on support tho).

If student spends own money on > 50% of support (whether earned or unearned) then they can at least file as independent, and get the whole 12.4k standard deduction, a bit better than the usual 1.1k.
Thanks. These tax laws are too complicated.

Just to clarify, a 19-24 year old college student then could file as independent single on federal tax return, yet at the same time, the parents are subject to kiddie tax.
No, the kid is subject to the kiddie tax and most of his unearned income (cap gains, etc) will be taxable at the parents rate.
Thanks. I was wondering about that. So, in this case, athe savings will come only from the 12.4k standard deduction over the usual 1.1k.
Sorry again - according to Kiplinger:
If you can be claimed as a dependent by another taxpayer, your standard deduction for 2021 is limited to the greater of $1,100 or your earned income plus $350.
Topic Author
opus360
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Re: 19 yr old college student - does Kiddie tax if financially independent via gift from parents?

Post by opus360 »

oldfatguy wrote: Thu Jun 10, 2021 2:54 pm Just to clarify, since your post references financial aid, the concept of "independence" is different for financial aid than it is for taxes: https://studentaid.gov/apply-for-aid/fa ... dependency

Perhaps your friend already understands this, but I thought it worth mentioning.
Interesting. I learn something new everyday. I'll be sure to pass on this info. I think his kid is still a dependent for financial aid purposes.

Does the CSS Profile have the same/similar questionnaire or classification of who is dependent or independent for financial aid?
Topic Author
opus360
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Joined: Mon Sep 30, 2013 10:02 am

Re: 19 yr old college student - does Kiddie tax if financially independent via gift from parents?

Post by opus360 »

pshonore wrote: Thu Jun 10, 2021 2:56 pm Thanks. I was wondering about that. So, in this case, athe savings will come only from the 12.4k standard deduction over the usual 1.1k.
Sorry again - according to Kiplinger:
If you can be claimed as a dependent by another taxpayer, your standard deduction for 2021 is limited to the greater of $1,100 or your earned income plus $350.
[/quote]

I haven't heard that this kid works, but I would be wrong. Thanks for clarifying.
oldfatguy
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Re: 19 yr old college student - does Kiddie tax if financially independent via gift from parents?

Post by oldfatguy »

opus360 wrote: Thu Jun 10, 2021 3:03 pm
oldfatguy wrote: Thu Jun 10, 2021 2:54 pm Just to clarify, since your post references financial aid, the concept of "independence" is different for financial aid than it is for taxes: https://studentaid.gov/apply-for-aid/fa ... dependency

Perhaps your friend already understands this, but I thought it worth mentioning.
Interesting. I learn something new everyday. I'll be sure to pass on this info. I think his kid is still a dependent for financial aid purposes.

Does the CSS Profile have the same/similar questionnaire or classification of who is dependent or independent for financial aid?
Not sure about the CSS Profile, but it only really matters for awarding federal aid (Pell grants, work-study, subsidized loans), which is determined from the FAFSA. Universities can give institutional aid (i.e., their own money) based on their own criteria.
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