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Co-owner for investment account or be a beneficiary for tax purpose?

Forum|Forum|1 year ago
February 12, 2025
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I have an investment account. Originally I was getting much refunds for both Federal and State before I added the information for my investment. Then, once I added the 1099-DIV, the federal tax became much DUE. I don't have that much investment, nor did I earn that much dividend. Indeed, the amount of the dividend is many times less than what my tax increases. That got me thinking WHY? Is it because I solely own the investment but not joint with my husband while filing jointly???

1. Would someone kindly explain how the tax differs between sole owner vs joint-owner for an investment account earnings. Are there any differences when filing for the tax???

2. Would it actually better to have a joint investment account than having my husband as a beneficiary regarding tax perspective? I am not sure what "if one contributes much more than the other account owner, then IRS would treat it as a "gift" means???? If we both owned the same account, we put cash there for investment, but NOT a retirement at all???

Thanks much for the help

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Best answer by MAK70

You may need to check your entry- the tax should not increase more than the income. The joint ownership would not make a difference in this case.

The sole versus joint ownership might not make a difference for tax purposes, and there are different rules for spouses and other joint owners. When looking at ownership, joint account holders have the same rights to contribute or withdraw funds. There could be a tax issue if the co-owners are not spouses because if one owner claimed more income than their share of contributions. This is the assignment of income principle.

For example, an account was jointly owned by Marge and Greg (not related). Marge out $100,000 in, Greg 0. Greg received the entire dividend so he reports it on his return. This would be have to be treated as a gift because Greg would have no income on his own because he did not make any initial investment. Marge on the other hand, should report the income but does not so if it was not a gift she would be underreporting the income.

Gift come into play because there are unlimited gits allowed between spouses. Gifts are not reported as income to the recipient but in the example, Greg does not report the gift as income but the dividend received. The donor may have reporting requirements as well.

M

MAK70Answer

You may need to check your entry- the tax should not increase more than the income. The joint ownership would not make a difference in this case.

The sole versus joint ownership might not make a difference for tax purposes, and there are different rules for spouses and other joint owners. When looking at ownership, joint account holders have the same rights to contribute or withdraw funds. There could be a tax issue if the co-owners are not spouses because if one owner claimed more income than their share of contributions. This is the assignment of income principle.

For example, an account was jointly owned by Marge and Greg (not related). Marge out $100,000 in, Greg 0. Greg received the entire dividend so he reports it on his return. This would be have to be treated as a gift because Greg would have no income on his own because he did not make any initial investment. Marge on the other hand, should report the income but does not so if it was not a gift she would be underreporting the income.

Gift come into play because there are unlimited gits allowed between spouses. Gifts are not reported as income to the recipient but in the example, Greg does not report the gift as income but the dividend received. The donor may have reporting requirements as well.

J

jade70Author

MaryK4. Thank you so much explaining the topic, by using the example, which was very clever and clear. I learned so much from your reply, and learn that it is not really black and white, as how I searched online with the AI answers, which I could not understand what is what!!!

Thanks