Tax strategy: Can I sell my kid's stocks to trigger capital gains without filing taxes because the amount is under the threshold?

This is actually a smart tax planning move, but there are a few things to consider: First, you're right that there's a filing threshold for dependents. For 2025, if your child only has unearned income (like capital gains), they don't need to file if it's under $1,250. So as long as the gains each time you sell are under that amount, you're technically correct. However, be careful about the "wash sale" rule - it prohibits claiming a loss if you buy the same or substantially identical security within 30 days. But this only applies to losses, not gains, so your strategy of selling at a gain and immediately rebuying should be fine. Also, remember that even though your child might not be required to file, you as the parent may need to include their investment income on your return if it exceeds certain thresholds (much higher than what you're describing). One last consideration: if your child has any other income (like a summer job), you'll need to factor that in when determining whether they need to file.

I did something similar with my kids' investments and found taxr.ai (https://taxr.ai) super helpful for figuring out all the details. Their system analyzed my kids' investment statements and gave me a clear explanation of exactly how much I could sell each year without triggering filing requirements. What made it really valuable was that it showed me the timeline for optimal tax harvesting based on their projected growth and the current tax code. Saved me from making a costly mistake with wash sale rules that I hadn't fully understood. They have a specific module for family investment planning that's perfect for situations like yours.

I was skeptical about using any kind of automated system for tax planning with my kids' accounts, but I decided to try taxr.ai after reading about it here. Honestly, it was eye-opening. I had been planning to sell my daughter's stocks all at once before she started college, but the analysis showed me I was about to create an unnecessary $3,800 tax bill. Instead, I followed their recommended schedule of smaller sales over three years, and we haven't had to file a single return for her. The system even sent me calendar reminders for the optimal selling dates. Definitely saved us more than I expected!

If you're going to implement this strategy, you absolutely need to be able to get through to the IRS if you ever get questions about it. I spent WEEKS trying to get clarification on a similar situation with my son's investments. Finally used Claimyr (https://claimyr.com) and got through to an actual IRS agent in about 15 minutes who confirmed my approach was legitimate. Check out their demo at https://youtu.be/_kiP6q8DX5c to see how it works. Basically they hold your place in the IRS phone queue and call you when an agent is about to answer. Saved me literally hours of hold time, and the agent I spoke with gave me the exact documentation requirements for my situation so I'd be protected in case of an audit.

Man, I was completely wrong about Claimyr. I tried calling the IRS myself this morning about my daughter's investment income reporting requirements and got the "due to high call volume" message after 45 minutes. Gave Claimyr a shot just to prove it wouldn't work, and I actually got through to a real person at the IRS in about 20 minutes. The agent confirmed exactly what I needed to know about the filing thresholds for my kids' capital gains and gave me the specific form references. I'm usually the first to call BS on these services, but this one actually delivered. Saved me from making a serious mistake on my strategy too - turns out I was confusing earned and unearned income thresholds.

Just a heads up - make sure you're keeping meticulous records of the original purchase dates and prices as well as all the sales if you do this strategy. The IRS can look back several years, and you'll want documentation to prove your cost basis adjustments were legitimate if questions ever come up. I did something similar with my kids' accounts but got sloppy with recordkeeping, and it was a nightmare sorting it all out when they hit college age. All it takes is one broker transition or account change to lose that history.

Has anyone used TurboTax to handle reporting their kids' investment income? I'm implementing this strategy but worried about how to report it correctly.

This is a solid strategy that I've actually implemented with my own kids' accounts. One thing I'd add to the excellent advice already given - consider timing these sales strategically around the calendar year. Since you're dealing with such small amounts, you have flexibility to spread the gains across multiple tax years if needed. For example, if one of your kids has a particularly good year in the market and the gains would push close to that $1,250 threshold, you could sell half in December and half in January to split it across two tax years. Also, don't forget about dividend reinvestment - those dividends count as income too, so factor them into your annual calculations. Most S&P 500 index funds have relatively low dividend yields, but it's still worth tracking. The beauty of starting this early is that you're teaching your kids about both investing AND tax strategy. When they're older, they'll understand the value of tax-loss harvesting and basis management because they've seen it in action.