Terry, very interesting Savage Truth this week. Question: Are there thresholds of dollar amounts below which the IRS would not require reporting on stock sales? What are the implications of sales of stock that were purchased say, monthly.

Terry Says:  This is an interesting question — and the answer is “it depends”!  According to the IRS:  If the child’s interest and dividend income (including capital gain distributions) total less than $10,000, the child’s parent may be able to elect to include that income on the parent’s return rather than file a return for the child. See Form 8814 (PDF), Parents’ Election To Report Child’s Interest and Dividends.

To get the complete tax picture consult your own tax preparer, but here is a link to that section of the IRS that deals with unearned income, dividends, and capital gains for a minor.   The purchase records of the account would help you keep track of eventual capital gains.  Gosh, I hope it becomes a HUGE problem!!

The other issue, which I made sure to note in my column, is that the child takes possession of the stock at the age of majority  — 18 in most states — so you better be teaching wise use of money.

And finally, and there was no room to include this, money in a custodial account (which this will be) weighs far more heavily against the family in the FAFSA financial aid formula.

Still, I think its a great idea — my favorite gift idea for kids this year!