Adjust Strategies for Gift Giving in Light of the Revised Kiddie-Tax Rules
Focus on shifting income to grown children who qualify for tax-free capital gains.
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 history. But older children and other lower-income family members, such as elderly parents, who qualify for a temporary 0% capital-gains rate may benefit mightily from your gifts.
The kiddie tax, which taxes a child’s investment income above certain levels at a parent’s higher tax rate, now applies to children under 19 and to 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.)
For 2009, the first $950 of a child’s unearned income is tax-free and the next $950 is taxed at his or her own rate. But a youngster’s investment income in excess of $1,900 is taxed at the parents’ higher rate.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
While the latest 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 tax new rule that allows those in the two lowest income-tax brackets to claim long-term gains and qualified dividends tax-free for 2009, and for 2010 as well.
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 before the end of the year to help buy her first home. (She’ll be off to a great start because she probably will also qualify for the new $8,000 tax credit for first-time home buyers). 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 assuming she is in the 10% or 15% income-tax bracket, she’ll qualify for the 0% capital-gains rate. That means the $5,000 gain will be tax-free for her, saving your family $750.
When you give someone stock or other property, the recipient assumes your original cost basis and holding period. In 2009, you can gift up to $13,000 per recipient, or you and your spouse together can gift up to $26,000 per recipient, without filing a federal gift-tax form.
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
-
Why Tesla Stock Is Soaring After a Q1 Earnings Miss
Tesla came up short of analysts' expectations for its first quarter, yet its stock is roaring higher today. Here's why.
By Joey Solitro Published
-
Eight Easy Ways to Save Money Without Compromising Your Lifestyle
Saving money can be as simple as a quick phone call.
By Kiplinger Advisor Collective Published
-
Georgia Has a New 2024 Income Tax Rate
Tax Cuts Georgians now have a tax package containing income tax cuts, childcare relief, and potential property tax caps.
By Kelley R. Taylor Last updated
-
'Instant' EV Tax Credits Are a Hit: $580M Paid This Year
EV Credits Claiming federal electric vehicle tax credits at the point of sale is a new and popular option in 2024.
By Kelley R. Taylor Last updated
-
Retirees Face Significant Tax Bills Due to Fraud
Fraud A new report sheds light on how older adult scam victims end up with big tax bills and lost retirement savings.
By Kelley R. Taylor Last updated
-
Tax Day: Is the Post Office Open Late?
Tax Filing Tax Day means some people need to mail their federal income tax returns.
By Kelley R. Taylor Published
-
High Earners: Beware of These Illegal Schemes to Lower Taxes
Tax Schemes The IRS says high-income filers are targets for several illegal tax schemes.
By Katelyn Washington Last updated
-
Mailing Your Tax Return This Year? What to Know Before You Do
Tax Filing There are plenty of reasons not to mail your tax return this year, but here’s what you should know if you are.
By Katelyn Washington Last updated
-
A Bunch of IRS Tax Deductions and Credits You Need to Know
Tax Breaks Lowering your taxable income is the key to paying less to the IRS. Several federal tax credits and deductions can help.
By Kelley R. Taylor Last updated
-
IRS Warning: Beware of Smishing and 'Helper' Tax Scams
Scams Tax season is a time to look out for email and text message scams.
By Kelley R. Taylor Last updated