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I'm currently 17 and will be turning 18 in a month. I made money by freelancing and paid taxes in my name. However, when I wanted to invest in the stock market, I couldn't have an account in my name since I'm under 18.

The broker suggested me to have an account in my mother's name, and I can operate that.

So we did that, transferred money from my bank account to my mother's bank account and then invested it into the stock market. The entire brokerage account is in her name and officially, on-paper, the account is operated by her only. Also, from broker's POV, the money is of my mother's but in reality, it's mine since I transferred it to her account.

That's the case, I have two questions and I hope you could help me out:

  1. Should I keep everything going as it is or should I create an account on my name and transfer stocks into it?
  2. What's the tax scenario? Who is supposed to pay the 15% taxes, me or my mother, on the short-term profits that I've made?

UPDATE: I'm sorry, I forgot to mention that I'm from India. Also, I trust my mother (duh, obviously) and have no issues even if I have to end up giving that money to her. I'm just uncertain about who should pay the taxes and how should I proceed when I turn 18, the time when I could have my own trading account.

  • Sorry for the late reply. I'm from India. – Anoneemus Mar 1 '17 at 19:01
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Once you turn 18 you should open an account in your own name and transfer the assets there. Currently your mom is the one responsible as far as the IRS cares with respect to taxes as it is her name on the account. The taxes due will be based on your mom's tax rate. As a good child you can reimburse your mom for the taxes that she has to on your behalf.

Also legally that money currently belongs to her. Any legal judgement against your mom can claim that money and it is not available for using as an asset by you on credit applications and such.

A better solution would have been for your mom to open a custodial account in your name. This way the money is still yours (you just don't have control of it until you turn 18). While probably not an issue here, the transferring of money between you and your mom (and then back) is considered a gift by the IRS. If the account was very well funded then you could run into having to deal with the annual gift limit and lifetime gift exclusion.

Based on the clarification that the question is in reference to India: while I don't know the particulars of the law in India my advice of transferring the assets when you turn 18 still remains. The main difference that I would see been India and the US would be the gift tax / exclusions. Unless someone else knows otherwise I would still expect the law in India to see the current account as being the property of the mother.

  • I'm from India, would appreciate if you can update your answer. I'm really sorry for not mentioning it earlier. – Anoneemus Mar 1 '17 at 19:02
  • The OP has clarified that this question is for India, you may want to update or delete this answer. – NL - Apologize to Monica Mar 1 '17 at 19:02
  • So all the tax would be done under mom's name and later she can transfer that cash (profits, investments; overall the money that I originally transferred to her account) to me while being under the gift tax limit of India, am I right? – Anoneemus Mar 2 '17 at 12:44
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The bottom line is you broke the law. While this is pretty much victimless, it is none the less a violation of the law and should be avoided in the future. I would have not agreed to this as a parent and it sets a bad precedent. As such I would avoid trading and move the money into cash until you turn 18.

Once you turn 18 you should transfer the money into an account of your own. From there you may proceed as you wish.

As far as paying taxes, of course you need to pay them. Your mother did this as a favor to you and by doing such you caused her tax bill to rise. As a gesture of goodwill you should at least provide her with half of the profits, not the 15% you propose. Fifteen percent would be the "I am an ungrateful son" minimum, and I would seriously consider giving all of the profits to her.

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    Can you clarify (a) what law? We don't even know OP's country. And (b) why just paying the tax out of these funds isn't enough? Don't most countries have a custodian account, as we have a UTMA/UGMA in the US? – JTP - Apologise to Monica Mar 1 '17 at 15:55
  • I was using his own statements to make the judgement. – Pete B. Mar 1 '17 at 16:06
  • To me, it looks like he got bad advice from a broker, and the account should pay the tax it owes. Waiting to see if he lists his country. – JTP - Apologise to Monica Mar 1 '17 at 16:08
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    I'm not a lawyer, but I don't see what law would be broken here. As far as the government is concerned, he gave money to his mother, and he is now giving her advice on how to invest it. If he's in the US and the amount was large enough, there could be an issue of gift tax. (Over $14,000 for 2016.) As I say, I'm not a lawyer, maybe there's some law I don't know about. – Jay Mar 1 '17 at 16:18
  • I'm from India. – Anoneemus Mar 1 '17 at 19:00

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