Joint Brokerage Account

Be_erguy123

Hi All. I'd appreciate some guidance on an issue regarding income tax on a brokerage account. My wife has a brokerage account, and her son is a very successful daytrader who is authorized by POA to trade on her account. She funded all the working capital, and she withdraws the profits on a regular basis and shares it with him 50/50.

Under the current arrangement, she will end up paying income tax on the earnings by virtue of owning the account. Technically, she is under obligation to 1099 her son for his 50% share (that she already paid income tax on). It is clearly not a gift, because he is performing a function to earn the money.

Is there a means to mitigate the collective tax liability by creating a joint account with both of them? If they do this, can they get away with splitting the profits at their discretion even if she continues to be the primary holder of the account by having exclusively funded the working capital? In other words, she would still bear the income tax liability for the account earnings but avoid him having to declare income on the share that is transferred to him (by virtue of having an ownership stake in the account).

Thank you!

MatthewD

Hi Beerguy123,

From my understanding a joint brokerage account is generally for married couples. So that may not be an option. Since her son is helping her, they really have a partnership. They may want to form a partnership and file a Form 1065 partnership return and then they each get a Schedule K-1 (form 1065) to report on their personal income tax returns. The Schedule K-1 has Box 8 - Net Short-Term Capital Gain (Loss): and Box 9a - Net Long-Term Capital Gain (Loss): which are then reported on Schedule D.

You may also want to consult with the brokerage to see what you need to do to register as a partner. Since we are tax professionals, this is out of our scope about how to form a partnership or handle the accounting in situations like this, so you may want to consult a business or investment specialist.