I cashed in my 11 year old son's Uniform Gift to Minor's Account in 2006. The value was roughly $5,000.00. The account only realized about a 3% profit the whole 5 years we had it. Will I have to file some sort of tax return on this? The account was listed with his social security number.
Income that accrues to a minor, such as income from a UGMA account, is taxed as follows in tax year 2006. Assuming the child has no other income and is under age 14, the first $750 of investment income falls into the child's zero bracket. The next $750 is taxed at 15%, and the rest is taxed at the parents' top bracket (marginal rate). The tax on a child's income imposed at the parents' top bracket is the so-called "kiddie tax." If the child is 14 or over, the parent's tax situation does not come into play at all. All the income is on the child's return and he or she is taxed as an entity unto himself/herself. Always check the Form 1040 instructions for the appropriate number to use for a given tax year. Also note that IRS regulations require all minors 14 or older to sign their own tax returns. Finally, please note that these tax rules are for earned and unearned income for a minor; there is no special tax treatment for UGMA accounts. |
