UTMA Tax question

[old medic]

I opened a UTMA account for my Grandson, And received a 1099 from it. In the past the 1099 from his saving we just added to ours, but not sure about this one since its about 5 times the amount.
Should I just put it on ours since I'm the custodian, our pass it along to his mother since she claims him?

 

[L-5Player]

Your grandson's tax filing obligation is based on his income and dependent status. Assuming he is a tax dependent of his mom, then:

If in 2024 he earned more than $14,600 from wages OR $1,300 from investment income, he needs to file his own tax return. If he falls under that filing threshold, then there are two choices; either mom claims his investment income on her own return, or he files a return and owes tax based on the "kiddie tax" guideline.

This guideline is that there's no tax on the first $1,300, the dependent's marginal tax rate (usually 10%) is imposed on the next $1,300, and any unearned income above that is taxed at mom's marginal tax rate.

It's usually advantageous for him to file his own return so mom isn't taxed on his investment income at her higher rate. But this could change if she pays to have her taxes done and the fee exceeds the savings.

You can read about filing requirements here:

Publication 501 (2024), Dependents, Standard Deduction, and Filing Information | Internal Revenue Service

www.irs.gov

 

[SecondCor521]

Your grandson's tax filing obligation is based on his income and dependent status. Assuming he is a tax dependent of his mom, then:

If in 2024 he earned more than $14,600 from wages OR $1,300 from investment income, he needs to file his own tax return. If he falls under that filing threshold, then there are two choices; either mom claims his investment income on her own return, or he files a return and owes tax based on the "kiddie tax" guideline.

The last sentence above is inaccurate.

If he falls under the income thresholds, then both (a) he is not required to file a tax return at all (except in unusual circumstances), and (b) he therefore is not subject to kiddie tax at all - see the instructions for Form 8615, "Who Must File" item 2:

"Who Must File
Form 8615 must be filed for any child who meets all of the following conditions.
1. The child had more than $2,600 of unearned income.
2. The child is required to file a tax return.
[...]"

-- https://www.irs.gov/pub/irs-pdf/i8615.pdf

(In this context "Who Must File" means "who must file Form 8615 and consequently pay kiddie tax".)

 

[youbet]

SecondCor521:

I have a situation very similar to OP's. Opened a UTMA acct for my grandson in 2024. Just got the 1099. His SS# is the taxpayer ID. The amount is about 100 bux of div and int. He had zero earned income in 2024.

Am I reading your info above correctly that he doesn't need to file nor does his parents, who claim him as a dependent, need to include this passive income on their return?

Thanks!

 

[SecondCor521]

SecondCor521:

I have a situation very similar to OP's. Opened a UTMA acct for my grandson in 2024. Just got the 1099. His SS# is the taxpayer ID. The amount is about 100 bux of div and int. He had zero earned income in 2024.

Am I reading your info above correctly that he doesn't need to file nor does his parents, who claim him as a dependent, need to include this passive income on their return?

Thanks!

Correct on both points.

His parents should confirm this by checking the filing requirements in Charts B and C in the Form 1040 instructions on pages 10/11 or so at https://www.irs.gov/pub/irs-pdf/i1040gi.pdf. Chart B is for typical dependent scenarios (like your grandson); Chart C is for uncommon stuff.

 

[youbet]

Correct on both points.

His parents should confirm this by checking the filing requirements in Charts B and C in the Form 1040 instructions on pages 10/11 or so at https://www.irs.gov/pub/irs-pdf/i1040gi.pdf. Chart B is for typical dependent scenarios (like your grandson); Chart C is for uncommon stuff.

Looks like he's good to go per Chart B. Thank you very much for your help!

 

[old medic]

SecondCor521:

I have a situation very similar to OP's. ............ The amount is about 100 bux of div and int. He had zero earned income in 2024.

Our grandson just turned 13, His is almost $200 and no income.

 

[old medic]

-- https://www.irs.gov/pub/irs-pdf/i8615.pdf
(In this context "Who Must File" means "who must file Form 8615 and consequently pay kiddie tax".)

In reading that, he might need to pay tax on the money we opened the account with as unearned income.

 

[SecondCor521]

In reading that, he might need to pay tax on the money we opened the account with as unearned income.

Probably not. That was probably a gift from you to him. Gifts are not income.

If it was a very large amount in one year, you as the giver may have been required to file a gift tax return.

 

[old medic]

Probably not. That was probably a gift from you to him. Gifts are not income.

If it was a very large amount in one year, you as the giver may have been required to file a gift tax return.

It was his savings account money from over several years and moved into the UTMA at the same Credit Union.

 

[SecondCor521]

It was his savings account money from over several years and moved into the UTMA at the same Credit Union.

Moving money around (except for things like Roth conversions) does not create income.

He may have had income to earn the money in the first place to put into his savings account. But more likely they were gifts, or income from household chores below the filing requirement.

 

[SecondCor521]

In reading that, he might need to pay tax on the money we opened the account with as unearned income.

Ah, I just now see the reason for your question.

"Unearned income" is an IRS term to refer to things like interest and dividends and capital gains and to distinguish those kinds of income from earned income from a job.

Things like gifts, reimbursements, refunds, and inheritances are not unearned income because they are not considered income at all.

 

[L-5Player]

The last sentence above is inaccurate.

[snip]

(In this context "Who Must File" means "who must file Form 8615 and consequently pay kiddie tax".)

I am talking about the requirement for a dependent to file a tax return overall. Obviously there is no kiddie tax (specifically) until $2,600 in unearned income is exceeded.

 

[SecondCor521]

I am talking about the requirement for a dependent to file a tax return overall. Obviously there is no kiddie tax (specifically) until $2,600 in unearned income is exceeded.

Fine. But in the sentence of yours which I quoted, you gave two options:

If in 2024 he earned more than $14,600 from wages OR $1,300 from investment income, he needs to file his own tax return. If he falls under that filing threshold, then there are two choices; either mom claims his investment income on her own return, or he files a return and owes tax based on the "kiddie tax" guideline.

[Emphasis added.]

The better option, which you left out, was that he does not file a return and his mom leaves his investment income off her return.

 

[L-5Player]

The better option, which you left out, was that he does not file a return and his mom leaves his investment income off her return.

Yes, fair enough, if investment income is under $1,300 and there is no wage income, then nobody will be taxed. I probably should not have stated the requirement for filing as an OR in the first sentence. Hopefully we're clear on this now.

 

[old medic]

I'm thankful for the discussion...