Did you know you can sometimes save taxes by transferring assets into your children’s names? This tax technique, called income shifting, seeks to take income out of your higher tax bracket and place it in the lowest (15%) of your children.

"Kiddie tax" rules only apply to your children who are under 14 years old. Essentially, this takes the investment income of the child above $1,400 and taxes it at the parent’s higher tax rate. Accordingly, while some savings (up to $1,400 of income) can still be enjoyed through this manner of income shifting, substantial tax savings aren’t available. A dependant child cannot claim a personal exemption and is limited to a $700 standard deduction.

Under the kiddie tax, parents can elect to include the child’s income on their own return. This avoids the need for a separate return for the child, but generally doesn’t change the tax on the child’s unearned incoome, which is still taxed at the parent’s tax rate.

If you would like to find out more about the kiddie tax rules, contact Ellis & Associates, CPAs, P.A. for more information at (410) 256-9298.