Investing for someone else


P

Paul_B

Hello. This year I used a small amount of my niece's money for an
securities investment. I closed the position this week, made a
nice profit, and moved the funds to my checking account.

I want to give the proceeds to her, but the way I see it I'm
going to end up paying Fed and state taxes on it, in the high
bracket, and then she probably will as well, though she will be
in a lower bracket.

Is there any way to transfer the funds to her without my paying
the taxes? She then can declare it and pay her own taxes. Doesn't
seem right that the proceeds should be taxed twice.

I'm a private investor, doing so informally.

TIA,

Paul
 
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P

Phil Marti

Paul_B said:
Hello. This year I used a small amount of my niece's money for an
securities investment. I closed the position this week, made a
nice profit, and moved the funds to my checking account.

I want to give the proceeds to her, but the way I see it I'm
going to end up paying Fed and state taxes on it, in the high
bracket, and then she probably will as well, though she will be
in a lower bracket.

Is there any way to transfer the funds to her without my paying
the taxes?
If this was her money you were her "nominee." You transfer the proceeds of
sale to her on a 1099-B that you issue. Depending on what went on in the
investment you may also need a 1099-DIV and a 1099-INT. You'll also need
the 1096 cover sheet.

You'll receive 1099s for the investment, which you'll report as nominee
proceeds on your return (0 taxable income).

With any kind of luck this will cure you of repeating an operation like
this. If your niece wants you to do some investment for her, she can open
an account in her own name and let you take care of the investments. Do
check out any securities law requirements for people doing what you're
doing.
 
P

Paul_B

If this was her money you were her "nominee." You transfer the proceeds of
sale to her on a 1099-B that you issue. Depending on what went on in the
investment you may also need a 1099-DIV and a 1099-INT. You'll also need
the 1096 cover sheet.

You'll receive 1099s for the investment, which you'll report as nominee
proceeds on your return (0 taxable income).

With any kind of luck this will cure you of repeating an operation like
this. If your niece wants you to do some investment for her, she can open
an account in her own name and let you take care of the investments. Do
check out any securities law requirements for people doing what you're
doing.

Thanks a lot for that info, and yes, the cost of the informal
arrangement is too high - if not in taxes, in paperwork. I'll be
having lunch with her soon and have been thinking to convince her
to do just what you suggest.

Thanks again,
Paul
 
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P

Paul_B

Thanks a lot for that info, and yes, the cost of the informal
arrangement is too high - if not in taxes, in paperwork. I'll be
having lunch with her soon and have been thinking to convince her
to do just what you suggest.

Thanks again,
Paul

Phil and everyone,

Just a heads-up on getting advice from the IRS. Because I
couldn't corroborate this on my own, I called in today to make
sure the 1099B technique would be allowable (my reading said that
form is for brokers only). The woman told me I would not be able
to do this, that there was no way, once the securities were sold,
to transfer the proceeds without first incurring income tax
liability.

Later on in the day, on a hunch, I called in again. A different
woman directed me to P550, p. 65, where it speaks of nominees:

Nominees.
If you receive gross proceeds as a nominee (that is, the gross
proceeds are in your name but actually belong to someone else),
report on Schedule D, lines 3 and 10, only the proceeds that
belong to you. Then add the following amounts reported to you for
2004 on Forms 1099-B and 1099-S (or substitute statements) that
you are not reporting on another form or schedule included with
your return:

1. Proceeds from transactions involving stocks, bonds, and other
securities, and

2. Gross from real estate transactions (other than the sale of
your main home if you are not required to report it).

If the total of (1) and (2) is more than the total of lines 3 and
10, attach a statement to your return explaining the reason for
the difference.

File Form 1099-B or Form 1099-S with the IRS. If you received
gross proceeds as a nominee in 2004, you must file a Form 1099-B
or Form 1099-S for those proceeds with the IRS. Send the Form
1099-B or Form 1099-S with a Form 1o96, Annual Summary and
Transmittal of US information Returns, to your IRS center by
Feb. 28 (2/31 if filed electronically). Give the actual owner of
the proceeds Copy B of Form 1099B or 1099S by jan 31. On Form
1099-B, you should be listed as the ´Payer.¡ The other owner
should be listed as the ´Recipient.¡ On Form 1099-S, you should
be listed as the ´Filer.¡ The other owner should be listed as the
´Transferor.¡ You do not, however, have to file a Form 1099B to
show proceeds to your spouse. For more info about reporting
requirements and the penalties for fail- ure to file (or furnish)
certain information returns, see the General Instructions for
Forms 1099, 1098, 5498, and W-2G.


IOW, this is eminently doable, and doesn't appear to be too much
work.

The moral: be careful about what advice the IRS itself gives you
about taxes. And be thankful when you actually do receive the
right answer.

Paul
 

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