What is my sons tax liability?
Answers:
Your son's basis in the stock is your basis of $10. If he sells it, he will have a capital gain of $30 per share, or $3,000.
If he is over 18, he will owe a maximum of 15% capital gains tax on this amount. Depending on his other income, he may owe less or even nothing.
If he is under 18, then he will may owe a higher tax because of the kiddie tax. The kiddie tax imposes tax at the parent's rate for investment income over $1,700. So $1,700 would be taxed at his rate (maximum 15%), and $1,300 of his gain would be taxed at your marginal tax rate, or 15%, whichever is higher.
Good answer Ninasgramma.
Assuming your son is over age of 16 for this answer. Since he held the stock for three years any gain would be long term. A hundred shares at $ 10 gives him a basis of $ 1,000.00. If he sells it today for $ 40 (for our figuring this is after commission price) he gets $ 4,000.00; and after his basis is subtracted he has long term gain of $ 3,000.00; which is subjected to 5% tax if he is in the 10% or 15% bracket. If said gain is his only income he will zero out any tax owed and be home free.
The first answer was good until he stated part of the gain could be taxed at your rate or 15%, whichever is higher. Your rate for long term capital gains is not more the $15%.
100 shares times $30 gain per share is $3000 gain minus selling commissions. His tax liability would depend on his marginal tax bracket, but wouldn't be more than 15% of the gain.
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