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Gift to Minor-His tax liability

  • Thread starter braveheartsgirl
  • Start date

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braveheartsgirl

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I would like to avoid the capital gains taxes when cashing in a small number of stocks by "gifting" the stock to my 14 yr. old child prior to selling them. The total value of the sold stock would be under $10,000. I understand I can "gift" these stocks with no gift tax liability to myself, but what of my child's tax liability? The child has no other income to report. Will he/she have to file a tax return for this calendar year? Will he/she be required to pay any taxes on this income from the sale of the stock? Can I then use these monies to purchase new stock? Can the new stock purchase be in my name? My state of residency is Indiana.
 


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loku

Guest
Gift of stock

You can gift the stock with a value of less than $10,000 to your son without gift tax liability. Your son could then sell the stock. His gain would be the difference between the sale price and your basis for the stock. His basis would be the lesser of your basis or the value of the stock at the date of the gift. Basically he would have to file return if the gain was more than $700. His tax, if any, would probably be at a lower rate than yours.

However, it is not legal to do what you plan. If you then use the money, it would show that the transaction was a sham The IRS has a “step doctrine” that treats a series of transactions as one transaction in such situations. If they discover this, they would disallow the transaction and possibly fine you.
 
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braveheartsgirl

Guest
Thank you for the advice on this matter! I would not compromise my credibility for a few extra dollars. I had been told that this may be a way around paying the capitail gains tax. I am glad I inquired! Thanks again.
 

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