If the parents make this election, then the child does not have to file a return. If a child under the age of 14 has investment income and the parents do not make the above election, the child reports the income as any other taxpayer would. Special rules on how the investment income is taxed, however, may apply. Your Federal Income Tax I have both purchased and sold shares in a money-market mutual fund. The fund is managed so the share price is constant.
All gain is reported as dividends.
If the share price were constant, you would obviously have neither a gain nor a loss when you sell shares because you are selling the shares for the same price you purchased them. There is no requirement with that form that there be gain or loss on the sale, only a sale or exchange of an investment asset and sales proceeds. They would affect your total basis and total number of shares if they were reinvested in the mutual fund. Add the reinvested dividends and capital gains that you have reported as income on your tax return to your total basis. You will also own additional shares in the fund because the dividends and capital gains have been used to purchase shares.