{"id":10885,"date":"2016-09-12T08:52:53","date_gmt":"2016-09-12T15:52:53","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=10885"},"modified":"2016-12-20T13:41:46","modified_gmt":"2016-12-20T21:41:46","slug":"investor-facts-kiddie-tax","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/investor-facts-kiddie-tax\/","title":{"rendered":"Investor Facts: What Is The Kiddie Tax?"},"content":{"rendered":"

The kiddie tax is a tax on investment income received\u00a0by a minor child from an investment controlled by a parent.<\/p>\n

A parent with a high tax rate on his or her investments might be tempted to transfer those investments into the names of children in a bid to lower the tax rate on that income. The kiddie tax is meant to discourage that idea.<\/p>\n

The\u00a0kiddie tax falls on unearned investment income received by children under\u00a018 and full-time students between the ages of 19 and 23. The income must be above a specific dollar threshold and is\u00a0adjusted<\/a> by the child\u2019s own earned income, say from a part-time job.<\/p>\n

\"kiddie<\/p>\n

Investment income above the threshold is taxed at the parent\u2019s highest marginal tax rate<\/a>, often a higher rate than the parent would have otherwise paid.<\/p>\n

Previously, the rule applied to only children under 14, thus the name \u201ckiddie tax.\u201d<\/p>\n

The tax affects only people with significant investments in taxable accounts who might consider transferring that wealth to their minor children. Most\u00a0people\u00a0do\u00a0not run afoul of the rule because\u00a0they save money into tax-deferred retirement accounts<\/a>\u00a0instead.<\/p>\n

However, there is nothing wrong with giving your kids money and investments while you are alive. In fact, the government allows you to make ample annual tax-free gifts to children.<\/p>\n

Those gifts can be up to $14,000 to each child each year. The gifting is counted against the parents\u2019\u00a0lifetime inheritance tax exemption of well over $5 million for each spouse, a number most taxpayers\u00a0never come near in any case.<\/p>\n

Tax advantages<\/h2>\n

Usually, such\u00a0gifts are made to adult children who then control those assets. You can give money to a minor child, too. Under the Uniform Gift to Minors Act the investments you transfer to a minor are\u00a0put into a trust.<\/p>\n

A trust is used because\u00a0a child is unlikely to be in a position to make decisions about the money. Otherwise, it might appear that you are making a gift to avoid taxes on investments you intend to control.<\/p>\n

Nevertheless, there are tax advantages to gifting<\/a> to a minor, if you file correctly. Always consult a tax professional before making any decisions about making gifts.<\/p>\n","protected":false},"excerpt":{"rendered":"

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