A past month article in FSB discussed the federal limits parents can shift to a child to take advantage of the youth's lower tax rate. The Small Business and Work Opportunity Tax Act of 2007 includes changes to the "Kiddie Tax". For example, it states that...
You are eligible for a tax break if:
* In tax year 2007, your child reports under $1,700 in passive investment income.
* In 2006 your childe was 18 or younger. In tax year 2008 the age rises to 19 years (up to 24 for full-time students).
Strategies:
* Transfer growth investments, which don't throw off much income, to a child's account
* Hire your child. If the child is over 18 and his/her earned income exceeds half of his/her "support" (your calculation of what it costs to house, feed, and clother the child), your higher tax rates won't apply: that is, put the kid to work in your business, raise her earned income, and lower the risk she'll trigger the kiddie tax.
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