scenario: have some stock that has highly appreciated and would rather not pay the taxes on it when sold, or at least try and pay less taxes...somehow...and we have college tuition coming up, so looking for a strategy.

Unclear to me how/if we can use the UGMA/UTMA process to gift stock to our child, and when sold if there are any tax advantages to it since he basically has no income.

From what I can understand from reading this: https://www.fidelity.com/learning-center/personal-finance/custodial-account-for-kids

Realized earnings are taxable Earnings are subject to taxes. Income from investments is considered unearned income by the IRS. For children, unearned income above $2,700 is taxed at the parent's rate in 2025. If interest and dividend income comes to less than $13,500 in 2025, the parent can include that income on their return.

...it sounds like up to $2700 would be non-taxable? Am I reading this right?

Questions:
1) what is the advantage of including this on our tax return versus his, if any?
2) is this too much hassle to avoid paying taxes on only $2700? I was thinking if done 1x per year, it adds up a bit?
3) I guess his income is irrelevant since it says right there - unearned income taxed at parents rate..so there is not tax savings except up to this 2700 limit, right?
4) it says nothing about cap gains...where does this fit in?

I understand his assets affect fin aid, but we won't get any anyway. Also understand it is all HIS money but we are not concerned about him not paying tuition with it.

The so-called Kiddie Tax applies to all unearned income, interest and dividends as you note, but also capital gains, rents, royalties, etc.

The $2,700 isn't tax free. The first $1,350 is tax-free, the next $1,350 is taxed at the child's tax rate, anything above $2,700 is taxed at the parents' rate.

thanks...I am also reading:

A child is required to file Form 8615 if the child is under 18 at the end of the year, is 18 years old (or is a full-time student aged 19-23) and doesn't have earned income that's more than half of the child's support for the year.

He's 18/full time student. He has earned income, but what is considered "child's support"?

CapCity12thMan said:

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thanks...I am also reading:

A child is required to file Form 8615 if the child is under 18 at the end of the year, is 18 years old (or is a full-time student aged 19-23) and doesn't have earned income that's more than half of the child's support for the year.

He's 18/full time student. He has earned income, but what is considered "child's support"?

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"More the half the child's support basically means the childs overall cost of living. It's worded that way for dependent guidance for divorced parents or when the child is self-sufficient.

CapCity12thMan said:

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thanks...I am also reading:

A child is required to file Form 8615 if the child is under 18 at the end of the year, is 18 years old (or is a full-time student aged 19-23) and doesn't have earned income that's more than half of the child's support for the year.

He's 18/full time student. He has earned income, but what is considered "child's support"?

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Also, if a child has earned income that is more than half his or her support, they fail the support test and are not your dependent, so Form 8615 is not applicable.

This could be used by higher income folks that own a business and have shifted or accumulated a decent amount of investments in the names of their children and those assets generate a decent amount of dividends and interest etc. Since the dependency exemptions are gone, and they are high income, claiming the child is of no benefit, so they pay them wages from the business that are then deducted at the parent's tax rate, taxed to the child at his or her lower tax rate, and the wages are high enough that the child cannot be a dependent due to the support test, and the investment income is all taxed at the child's lower tax rate, not the parents.