Shift Your Income To Family Members And Save $$$
The power of family is actually one of your best tools
to lower your tax bill. Here are some ways to use this power to
minimize taxes:
- Give income-producing assets to children. Children can
receive $1600 per year in investment income, tax-free.
If the child is 14 or older,
the "kiddie tax" then kicks in. If you roll your childrens' income into a traditional Individual
Retirement Account for them, taxes are deferred until they withdraw it.
You might also consider an Education IRA.
- You can start a sideline business and employ your children. Their
wages are a deductible business expense. I'll talk about this more in
the Business Tax Breaks section.
- Make your family business a family limited partnership.
Ownership of the business can be gradually transferred to your children by
using the $10,000/spouse gift exclusion. Your children will get part of
the income from the family business, and be taxed at the low rates allowed
for children with low income.
There's some risk with all these strategies:
- A family member may decide to spend money that you give them in ways you
don't agree with, after they turn 18. Until then, you can probably
influence them to use their money wisely. One way to avoid this problem
is to have them co-invest with you in nondivisible properties; for example,
buy real estate where the division is 60/40 in your favor, giving you a
controlling interest.
- The money you give your kids may disqualify them from future government
assistance with college tuition.
Here's how you would transfer investment income to your children:
| |
|
|
| |
Shift Your Income To Family Members And Save $$$ 
|
Time to complete:
| A few hours |
|
Money you'll spend:
| Some legal and accounting fees may be necessary, depending on how far you go. |
|
What you'll get:
| Save hundreds of dollars each year |
Step-by-step instructions:
- Start an investment account for the child with your bank or
broker. To avoid the gift tax, the initial deposit should be less
than $10,000.
- Ask that it be governed by the Uniform Gift to Minors Act (UGMA) or the
Uniform Transfers to Minors Act (UTMA). To avoid capital gains tax,
transfer an asset to the account, instead of selling the asset and depositing
the money.
- Deposit only enough assets to generate less than $1600 in income per year.
For example, if you deposit assets that produce 7% income per year, you should
deposit $20,000 into the account.
- Read this TurboTax.com article on the Kiddie Tax for more ideas.
|
Further Reading:
|
|  |
|
|
|
Copyright (c) 1998-2007 Ark Royal Software.
Legal Notice, Disclaimer and Terms Of Use
|
