<p>Shortly after she turned 18, DD cashed out & transferred $ to us so no longer has it. I am confused as to how this is treated tax-wise. Would she just report and pay taxes on the paltry capital gains and dividends it earned above the $ we put in (the basis)? I am assuming it would not be considered <em>income</em>, but that panicked thought just occurred to me.</p>
<p>Capital gains taxes on UGMAs are paid by the child, although the parent has the option to report them on his or her income taxes. I think the cut-off is $950 - any income/capital gains under that is not taxable.</p>
<p>If she gifted you the proceeds, make sure it’s under the $13,000 annual gift tax exclusion so that gift taxes are not triggered. Gifts are never taxable income to the recipient; only the giver needs to be concerned with the amount exempted from Federal gift taxes.</p>
<p>I have had two UGMA’s, since I traded equities and futures for both kids. Luckily , I have never had to use my son’s UGMA until his last year of college, and than we were able to leave something substantial in a brokerage account. We never bothered with FAFSA since his college expenses for five years were relatively small, room and board a different story. Both kids are my dependents, but I have chosen to trade their accounts and consequently utilizing a 1040 for Schedule D.<br>
You are sheltered for up to $850 of their dividend income, and anything above taxed at 15%. Just do a 1040 for the child and a D, plus a new form (88XX). I just finished FAFSA, TAXES, and CSS, for the life of me I don’t recall the 88XX form.</p>