KIPLINGER TAX CENTER
TRUSTED ADVICE TO HELP YOU LOWER YOUR TAX BILL
PRINT
EMAIL
COMMENT
BUZZ UP
DIGG THIS- Ask Kim - Guaranteed-Interest Accounts for Military Members
- Stock Watch - Five Stocks That Make the Grade
- Fund Watch - Believe It or Not, Bulls Still Exist
- Starting Out - Savings With a Kick
- Value Added - How Bad Can It Get?
- Cash in Hand - An Income Smorgasbord
- Money Smart Kids - Should You Buy Your Kids the Finer Things?
- Drive Time - La Dolce Vespa
- On the Job - Know Thyself
- More
The days of giving appreciated assets or income-producing property to young children and teens as a way to trim the family’s tax bill are over. But older children and other lower-income family members, such as elderly parents, may benefit mightily from your gifts.
Starting this year, the kiddie tax, which taxes a child’s investment income above certain levels at a parent’s higher tax rate, applies to children under 19 and full-time students under 24. Previously, it disappeared when a child turned 18. (Children who provide more than half of their own support are not affected by the kiddie-tax change.)
In 2008, a youngster’s investment income of more than $1,800 is taxed at the parents’ higher rate. The first $900 of a child’s unearned income is tax-free and the next $900 is taxed at his or her own rate.
Although the new kiddie tax rules limit your ability to shift income to your younger children, your young adult children or other family members may benefit from another new tax new rule that allows those in the two lowest income-tax brackets to claim long-term gains and qualified dividends tax-free this year, as well as in 2009 and 2010.
Say you own $10,000 worth of stock that you bought years ago for $5,000. And let’s say you plan to give $10,000 to your 25-year-old daughter to help her buy her first home. If you sell your stock, you’ll owe the 15% capital-gains rate on $5,000, costing you $750. But give that stock to your daughter to sell and the $5,000 gain will be tax free, saving your family $750.
When you gift a stock or other property, the recipient assumes your original cost basis and holding period. In 2008, you can gift up to $12,000 per recipient, or you and your spouse together can gift up to $24,000 per recipient, without filing a federal gift-tax form.
Reprint Article
