Who is responsible for income taxes

Over the years I puchased thru the employees stock purchase plan several hundred AT&T shares. I put them in joint tenancy with my daughter, and we used her Social Security number as her income tax bracket was lower than mine and so taxes were less. She got to keep all the dividends over the years.

Now we are selling the stock and putting the proceeds into the living revocable trust that she and her husband have recently set up. The total is under $52,000 so there are no problems for me and my wife to gift our daughter and son-in-law the prodeeds from the sale.

My question is: Who reports the capital gains on their income taxes? Do I report all the gain on my joint with my wife retuurn, or does my daughter report the entire gain on her joint with husband tax return, or can we split the capital gains each of us reporting half?

Reply to
hrhofmann
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There are multiple issues with your set of facts. First thing that must be determined is whether at the time you reregistered the securities in joint tenancy you were making a gift to your daughter or whether you were merely changing title to avoid probate. For that determination one would look to see whether you retained any rights of ownership and exercised those rights. From the facts presented, it appears that you made a gift. You arranged for the dividends to be reported to the government as belonging to your daughter. Your daughter kept the dividends and I assume did not report that she was a nominee of those dividends and told the IRS that half belonged to you. It certainly appears as though you made a gift of the entire amount.

Secondly, having determined that you gave up your rights of ownership and gifted the stock to your daughter, we look to see whether you should have filed a gift tax return in the year of the gift. Depending upon the year, you would have to look what the annual limit was for gifts to individuals.

Thirdly, you stated that these shares were purchased under a qualified stock option plan (ESPP). If you disposed (a gift to your daughter is a disposition) of these shares before the requisite holding period for a qualifying disposition of the stock, you should have reported as compensation income in the year of the gift, the difference between the FMV on the date of purchase and the price you paid. The holding period is defined as the later of two years from the date of grant of the option or one year from the date of purchase.

If it was a qualified disposition, your basis in the stock transferred to your daughter. The character of the stock (ESPP stock) does not change. Upon selling it at a profit (you said there was a gain) your daughter would have to report as ordinary income the lesser of the gain or the difference between the FMV on the date of grant and the offer price. This ordinary gain is then added to the price paid for the stock to derive the adjusted basis to compute the capital gain.

Reply to
Alan

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This was done more than 40 years ago, I don't have any idea how the transfer from my name to joint tenancy with my daughter was done.

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Reply to
hrhofmann

It seems to me this was treated as hers.

The bigger issue for me would be whether there were any reinvested dividends, and if that was tracked.

Any particular reason the shares are getting sold and not just transferred to the trust?

Reply to
JoeTaxpayer

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I can sustantiate all the costs of the various T subdivisions going into the cost basis. My daughter acted herself, upon strong recommendations from myself.

A couple of weeks ago we transferred the stocks in an electronic form, using Scottrade, from joint tenancy with my daughter into joint tenancy with my wife and then sold the stocks thru Scottrade. We realized approx $30K. We then gifted the $30K to my daughter and her husband (staying under the gift tax limitations). They used the $$ to buy several stocks, only one of which was some T, but much less than before. This was to guarantee that my daughter and s-i-l would have the new higher basis for their future cost basis whenever they decide to sell the stock. I will wait and see how the paperwork crunches when I get the yearly statements and use that to decide which way to report the sale. Since I am now retired, the difference in taxes between the kids, and the wife and myself, is pretty small.

Thanks to everyone for their comments

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Reply to
hrhofmann

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