Transferring Appreciated Stock to 15-year old Son

[wealthyes]

I want to transfer my 2,000 shares of stock (basis is $13) to my 15-year old son and once the stock is in his name I want to sell it and have him pay the 5% capital gains (he has no earned income) versus me keeping the stock, selling it and paying 15% capital gains. After the sale in my son's name I would then deposit the resulting cash proceeds back into my account.

Questions:

1. Is this legal to transfer the stock to my son and then sell the stock once it is in his name?
2. Am I right that he would only pay 5% capital gains?
3. Are there any gift tax issues (limits) involved?
4. Any problems with me taking back the cash proceeds from my son after the stock sale?

Any worthy advice is greatly appreciated!

[anteater]

Originally Posted by wealthyes

I want to transfer my 2,000 shares of stock (basis is $13) to my 15-year old son and once the stock is in his name I want to sell it and have him pay the 5% capital gains (he has no earned income) versus me keeping the stock, selling it and paying 15% capital gains. After the sale in my son's name I would then deposit the resulting cash proceeds back into my account.

Questions:

1. Is this legal to transfer the stock to my son and then sell the stock once it is in his name?
2. Am I right that he would only pay 5% capital gains?
3. Are there any gift tax issues (limits) involved?
4. Any problems with me taking back the cash proceeds from my son after the stock sale?

Any worthy advice is greatly appreciated!

C'mon now.... Deep down, do you really think this little shuck and jive works?

Worthy advice? You gift the stock to the kid, it belongs to him. You don't get to take it back.

[wealthyes]

Originally Posted by anteater

C'mon now.... Deep down, do you really think this little shuck and jive works?

Worthy advice? You gift the stock to the kid, it belongs to him. You don't get to take it back.

But as the custodian I could simply transfer the funds after the sale back to my account and be done with it. The question really is, if I did this, is it "legal?"

[seniorjudge]

Originally Posted by anteater

C'mon now.... Deep down, do you really think this little shuck and jive works?

Worthy advice? You gift the stock to the kid, it belongs to him. You don't get to take it back.

Good answer**************...

[shortbus]

****************************......

[anteater]

Originally Posted by shortbus

It's legal, but why would you want to do it? It doesn't save any income tax (fed rate on long-term cap gains is 15% for everyone) and possibly creates gift tax liability.

There is a 5% cap gains rate and 15% rate for everyone. It depends on your tax bracket.

Once Daddy gifts the stock to the son, it belongs to the son. And, if Daddy, even as custodian, "transfers the funds" back to Daddy's account after sale, Daddy is stealing from the son. And, with any luck, the son would find someone to represent him in suing Daddy for return of the funds.

Besides, the IRS would recognize this for the charade that it is.

[wealthyes]

Originally Posted by anteater

There is a 5% cap gains rate and 15% rate for everyone. It depends on your tax bracket.

Once Daddy gifts the stock to the son, it belongs to the son. And, if Daddy, even as custodian, "transfers the funds" back to Daddy's account after sale, Daddy is stealing from the son. And, with any luck, the son would find someone to represent him in suing Daddy for return of the funds.

Besides, the IRS would recognize this for the charade that it is.

My advice I seek is simply this: I am trying to avoid me paying 15% on the gain by transferring the stock to my son and selling it in his name at 5% (10% savings). You say the IRS would recognize this as the charade it is, the question I'd like to know is whether the IRS rules prevent me from doing it? If this is a "legal" loophole (being able to legally transfer my stock to my son and sell it at his 5% rate then transfer the money back to my account) then why would I not do it since it would save me 10% in capital gains. I am only trying to find out if this can be done and done within the rules. You miss the point I am trying to make by saying I am stealing from my son, that is not the case nor the point of this discussion. If anyone knows the answer please share it with me. This is an honest question and real scenario I present here and I would like to know if someone can answer it. Thanks!

[LdiJ]

Originally Posted by wealthyes

My advice I seek is simply this: I am trying to avoid me paying 15% on the gain by transferring the stock to my son and selling it in his name at 5% (10% savings). You say the IRS would recognize this as the charade it is, the question I'd like to know is whether the IRS rules prevent me from doing it? If this is a "legal" loophole (being able to legally transfer my stock to my son and sell it at his 5% rate then transfer the money back to my account) then why would I not do it since it would save me 10% in capital gains. I am only trying to find out if this can be done and done within the rules. You miss the point I am trying to make by saying I am stealing from my son, that is not the case nor the point of this discussion. If anyone knows the answer please share it with me. This is an honest question and real scenario I present here and I would like to know if someone can answer it. Thanks!

The answer to the question is NO...you can't do that.

[davidlanderson]

never mind

[wealthyes]

Originally Posted by LdiJ

The answer to the question is NO...you can't do that.

Is that because there is a rule against it, or you think that it can't be done? Pardon the challenge to your answer but I want to know the true answer and not one that seems as though it fits. I happen to believe that I can do exactly what I have presented here (i.e., transfer my appreciated stock to my son, sell it, then transfer it back to me) because of an article I have from Bottom Line Tax that I subscribe to. Having said that, I wanted to come to a forum like this one to be sure. So anyone who offers an opinion, I would appreciate a foundation for your reply other than the ones I have been getting. I am trying to do this legally and would appreciate any and all sound information and guidance as long as you assure me that the answers are legit and not based on what you feel is right or wrong and might not be possible because it sounds too easy to do. There are lots of loopholes, you just have to know what they are. Thanks for listening and your comments!

[anteater]

Originally Posted by wealthyes

..... I happen to believe that I can do exactly what I have presented here (i.e., transfer my appreciated stock to my son, sell it, then transfer it back to me) because of an article I have from Bottom Line Tax that I subscribe to. Having said that, I wanted to come to a forum like this one to be sure..... There are lots of loopholes, you just have to know what they are.

One more time and then I also say "never mind."

Transfer appreciated stock to son and sell it. FREEZE PICTURE. Perfectly acceptable strategy to take advantage of a minor's presumably lower tax bracket. File your gift tax return, be a good custodian of your son's assets, and turn them over to him when he comes of age.

Then transfer it back. STOP. DO NOT PASS GO. DO NOT COLLECT $200.

How does the newsletter suggest finessing:

1) When you make a gift, even to a child, you can not just decide to take it back. Serfdom disappeared about 500 years ago, even for minors.

2) A transaction that lacks economic substance and whose purpose is simply to avoid taxes does not cut it. And that is what you are proposing. A gift that is not really a gift because you intend to take it back.

Are you sure that you are not tacking on the "transfer it back to me" part onto what Bottom Line has suggested?

[wealthyes]

Originally Posted by anteater

One more time and then I also say "never mind."

Transfer appreciated stock to son and sell it. FREEZE PICTURE. Perfectly acceptable strategy to take advantage of a minor's presumably lower tax bracket. File your gift tax return, be a good custodian of your son's assets, and turn them over to him when he comes of age.

Then transfer it back. STOP. DO NOT PASS GO. DO NOT COLLECT $200.

How does the newsletter suggest finessing:

1) When you make a gift, even to a child, you can not just decide to take it back. Serfdom disappeared about 500 years ago, even for minors.

2) A transaction that lacks economic substance and whose purpose is simply to avoid taxes does not cut it. And that is what you are proposing. A gift that is not really a gift because you intend to take it back.

Are you sure that you are not tacking on the "transfer it back to me" part onto what Bottom Line has suggested?

Okay Anteater...I appreciate your comments, thanks!!