Your Family Could Lower Your Taxes
Make the Kiddie Tax work for you. It is possible to realize substantial tax savings by shifting income from family members in high tax brackets to family members in low or zero tax brackets.
Under the so-called Kiddie Tax, the investment income of a child is taxed at the parents’ maximum tax rate. Did you know that only the portion of a child’s investment income which exceeds $2,100 a year is taxed at the parents’ top rate. The first $1,050 of a child’s investment income is tax-free, and the next $1,050 is taxed at the child’s own rate. Therefore, you can save taxes by giving your child assets that produce up to $2,100 a year.
Furthermore, up to $6,300 in earned income of a child is tax-free. The Tax Courts have ruled that reasonable salaries paid to children under age 14 for routine tasks at a parent’s business (including a sideline business) are deductible. Extra bonus: If a family business is not incorporated, there are no Social Security taxes on wages paid to a child who is under age 18.
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