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CREDIT, COLLEGE, TAXES AND REAL ESTATE

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Financial Advice from the
Founding Fathers
Their suggestions and ours might just help you forge your financial independence.
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ASK KIM
Stock for Students is a Smart Idea

My daughter is going to college after this summer. My wife and I want to give some of our stocks to her for her tuition and we can avoid some capital gain tax. I think each one of us can give her $11,000 per year (total $22,000). But will I still be able to give the same amount to my son without paying gift tax? He is going to college in a couple of years.

Yes. You can each give both your son and daughter –- and anyone else –- up to $11,000 per year without being subject to gift tax. Married couples can give a total of $22,000 to each person per year.

And it can be a smart tax strategy. Investment income for children age 14 and older is taxed at their rate, which is probably a lot lower than yours.

By taking appreciated stock you were going to sell anyway and gifting it to your children, you may be able to cut down the capital-gains tax rate by two-thirds -- since most kids will pay long-term capital-gains rates of just 5% when they sell, not the 15% that many parents will owe.

To qualify for the 5% rate, the child must be in the 10% or 15% income-tax bracket and at least a year must pass between when the parent originally bought the stock and the child sells it.

Keep in mind, however, that the kids will be taxed on the stock's appreciation since you originally bought it, not since it was transferred.

This strategy, however, could affect your eligibility for financial aid since students' assets -- and especially their income -- affect aid awards a lot more than parents' assets do. If qualifying for aid is an issue, then it may be better to wait until the child's last two years of college, when your gifts will have less impact on aid.


ASK KIM:
Send Kim your questions. She can't answer every one, but she'll answer as many as she can. If your question isn't published within a few weeks, scan the archives to see if Kim has covered the issue before, or start a discussion in the Kiplinger.com Community.
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