Unearned Income Defined

[Corduroy Frog]

A minor child has income resulting from a sale of securities, $10,000 minus cost of $9,000.  Gain is $1000.

For purposes of having to file, he must have "unearned income" over $1300 (among other possible requirements).

In the above example, is his "unearned income" $1000 or $10,000 for filing requirement purposes?

[mcb39]

Remember that this is reported on Form 8615 or can be attached to the parents' return.  You have to report it because the IRS does not know the basis if it is reported on a 1099R.  I just happen to have a Grandfather who gave six Grandchildren each 50 shares of valueable stock which they sold.  I have the 1099's for all of the children and will be reporting the CGs for each child whether it is taxable or not.

[Lion EA]

I go by gross income, assuming the broken IRS doesn't have the basis or lost it or didn't add it to client's account yet or...

It's faster to e-file a return now than to craft an answer to an IRS letter a couple years from now.

Filing can also prevent (or uncover more quickly) ID theft.

[jklcpa]

The quote below is from the 1040 instructions below the chart for most people and who must file. That being said, keep in mind that the IRS AUR system goes only by the gross proceeds received and so the taxpayer will receive a notice because it doesn't factor in the cost basis, so in this case I would file the return. 

Quote

Gross income includes gains, but not losses, reported on Form 8949 or Schedule D. Gross income from a business means,
for example, the amount on Schedule C, line 7, or Schedule F, line 9. But, in figuring gross income, don’t reduce your
income by any losses, including any loss on Schedule C, line 7, or Schedule F, line 9.

Also, parents can't elect to report this on their return because Sch D cap gain transaction is involved. That election is only available if minor child has only interest and dividends.

Edited March 3 by jklcpa

[mcb39]

3 hours ago, jklcpa said:

 

Also, parents can't elect to report this on their return because Sch D cap gain transaction is involved. That election is only available if minor child has only interest and dividends.

Thank you, Judy.  Another interesting tidbit.  All of my six Grandchildren did have CGs.

[Corduroy Frog]

Thank you to all.