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I've looked into this quite a bit and haven't found any red flags as to why this would be a legal/tax issue, but I wanted to post the question here to see if the community might help me recognize anything I've overlooked.

The Situation: My wife and I are U.S. Citizens, living in the US. I am employed full time and my wife is a stay at home mom. I am the only person making money, my wife has no taxable income. I currently manage all of our financial assets. A portion of which is allocated towards investments.

What I want to do is open a brokerage account for my wife and begin transferring all my cash from my brokerage account into hers. The eventual end goal being, that all of our investment funds end up in her account and I close my brokerage account. Admittedly I'll still making the investment decisions, but I'll just be executing those actions in her account rather than my own.

The Question: Ultimately what I want to know is if there is any legal or tax implications to moving "our" money from my account to hers and if once all finances are fully invested again can she claim all the dividends and capital gains as her own source of income? I say "our" money, because we live in a community property state and as far as the state is concerned everything that is mine is also hers.

The final scenario would look like this:

  • Close my brokerage account, move all cash into her brokerage account

  • Future income - direct deposits still go to my bank account, transfer investable cash into her account and invest money.

We're not trying to avoid taxes in anyway and still plan on filing jointly. I don't foresee any tax pro Or con to this.

Given the comments - here is a bit more explanation as to why

First off, I recognize this seems like a very bizarre scenario and it is likely that majority of people will not understand the situation. As mentioned we are in no way trying to evade or reduce our tax liabilities which seems to be the focus of most people. However, that said my goal is specifically to reduce my personal (individual) reportable annual income.

There are specific circumstances where my individual income is scrutinized and it is in my best interest to reduce my reportable annual income level as much as possible. That being said, my wifes annual income is 100% excluded from that scrutiny. Therefor, it is in our best interest for my wife to report all capital gains as her own. At the end of the day the only income I want to be attributed to me is the direct income I receive from my full time employment and all other sources of income will be reported through my wife.

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    It would help if you could share the reason for making this change. May 18, 2020 at 12:28
  • I agree with @Ben: without a reason, this seems a bit senseless. Whereas a joint account would make more sense to me, since both of you could make trades and withdrawals.
    – prl
    May 18, 2020 at 14:59
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    @BenMiller-RememberMonica Updated with more explanation.
    – Jay
    May 18, 2020 at 21:03

2 Answers 2

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As you said, you are in a community property state, and pretty much everything either of you have really belongs to both of you. But even if that wasn't the case, people that are married and are both citizens can give unlimited amounts to each other at any time with no tax consequences.

Also, because you are filing jointly, it really doesn't matter who the income belongs to either, because it will get taxed the same either way.

The only thing negative that I can think of is that if you sell assets in your account before giving the cash to your wife, you'll have to pay capital gains tax on any gain that you have realized.

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    He can also add her as a joint account holder and then wait a few days and then remove himself. That should have no tax implications since the actual stock was never sold. May 17, 2020 at 22:32
  • @AaronD.Marasco That's a good point. I don't fully understand what the OP is trying to do, so I don't know if that meets his needs or not, but that certainly is a good option. May 17, 2020 at 23:55
  • The other fairly obvious negative is that in the case of divorce, or just separation, one spouse controls access to all the money.
    – jamesqf
    May 18, 2020 at 16:58
  • @AaronD.Marasco that is a clever idea. I will definitely have to investigate that further to determine what if any consequences there are to that. I know often times in joint accounts each spouse has to claim specifically "what they contributed" so that may not avoid having to claim the gains myself, but definitely worth further investigation.
    – Jay
    May 18, 2020 at 21:11
  • @AaronD.Marasco wait, will that work? can you actually transfer ownership of stock held in a street name by such a process? if so, that sounds like a loophole the size of a barn especially if the other account holder isn't a spouse.
    – user12515
    May 18, 2020 at 21:14
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There does not appear to be any tax benefit of this arrangement.

I wonder if you want your wife to have income so that she can contribute to an individual retirement account? That wouldn't work either. For contributing to retirement accounts, the only income that matters is earned income (i.e., wages). Investment gains are not earned income and cannot be the basis for contributing to a retirement account.

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