What are the taxes on a 17-year-old's stock market investments?

September 26, 2008

From:  James
Date:  01 Sep 2008

Hello,

I'm 17 years old and have been investing in the stock market. My mother told me I can't do it anymore.

My portfolio is up 19%. She says if I sell the securities, I'll have to report it.

Will this affect financial aid for college? Will I be taxed heavily?

Thanks,
James

Answer

Date:  06 Sep 2008

Hello James,

Since you are a dependent, your income from passive sources like investing in securities is subject to tax at your parents' income tax brackets. For 2008, there is an $850 standard deduction of income that is not taxable, and another $850 of the income is only taxed at your personal tax rates. The nickname for the tax is the "Kiddie Tax." It is figured on Form 8615. (Your state income tax rules might be different because this is a recent federal tax law change for children over age 13.)

Sales of securities should be reported on Schedule D.

I can't tell you how this will affect your financial aid. A small gain shouldn't cause a problem. See your counselor at school.

If you are going to invest, you need to study the tax rules that apply. I recommend that you get a copy of 2008 Tax Facts for Investments at Amazon.com.

Good luck!
Mike Gray

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