Keith and Wanda Opened a Brokerage Account for Their Child

question 79

Multiple Choice

Keith and Wanda opened a brokerage account for their child Peter when he was five. Peter, now 12, earned dividend and interest income of $5,000 in 2018. Which of the following applies?

• A) Peter will have to pay capital gains taxes on his dividend and interest income.
• B) Keith and Wanda will be subject to kiddie taxes based on Peter's interest and dividend income.
• C) Since Peter is 12, any interest or dividend income he receives will be tax-free.
• D) Interest earned in a brokerage account is tax-free. Hence, Keith and Wanda do not have to worry about paying taxes.

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Definitions:

Interest Income

Income earned from investing in interest-bearing financial instruments, such as bonds, savings accounts, or loans.

Interest Income

Income earned from the lending of money or from investments in securities that pay interest, such as bonds.

Time Extension

Granting additional time beyond the original deadline to complete a task or fulfill a contract.

Accounts Receivable

Funds that customers owe to a business for products or services already provided but not yet compensated for.