TAXATION OF CHILDREN'S SEPARATE INCOME (Kiddy Tax)
• Dependent children have special income tax treatment...... Under 18, their tax rates are affected by their Parent's income tax rates. Children 14 or over are taxed at their own rates.
• Children under 18......Unearned income(other than W-2 income) under 18 is taxed at Parent's income tax rates if it exceeds $1,500. So, up to $1,500 of income can be passed to Children under 18 before income becomes taxable at Parent's rates. This can be done by Parents gifting income producing assets to their Children. Or, Grandparents can give gifts directly to their Grandchildren. Children under 18 must file income tax returns if they have any unearned income (interest, dividends, etc.) and their gross income exceeds $750.
• Children 18 or over......are taxed at their own tax rates. They may be claimed as dependents on their Parents returns which means they can't claim a dependency exemption on their own return.
TAX PLANNING TIPS
• TRANSFER APPRECIATED ASSETS TO CHILDREN 18 OR OVER FOR TAX ADVANTAGE! Savings can be dramatic! Ask for more details. Their sale of stocks will be substantially less than at your tax rates!!Be aware that they can do what they want with their investments.
• CONSIDER HIRING YOUR CHILD if you have your own business. You can deduct the wages you pay and the income will probably be at lower rates. It may not taxed at all if their W-2 income is below their standard deduction of $4,700. They can take out an IRA and shelter an additional $3,000. As long as you provide over 50% of their "support" you can still take them as a dependent. They will need a W-2 from your business, and have special treatment for Payroll taxes. But, you have to assign them jobs that they really perform that don't break any child labor laws, etc. Ask Barbara
This website is maintained by & material Copyright © 1998 James E Reynolds CPA