The tax joys of parenthood
Beware the kiddie tax
One former child-related opportunity to lower your tax bill, however, has been dramatically reduced. Previously, many parents shifted some of their higher-taxed investment income to their young children so that the earnings would be taxed at a lower bracket; for example, falling from a possible 39.6 percent rate to the youngsters' usually 10 percent or 15 percent bracket.
But the so-called kiddie tax limits this practice. When a young investor's 2013 earnings exceed $2,000, the tax rate applied to those excess earnings is the parents' -- not the child's. The higher tax rate remains in place until the child turns 19 or age 24 if the young investor is a full-time student. For 2014 planning purposes, the child's investment earnings limit remains at $2,000.
So, Mom and Dad, keep an eye on young Jimmy's or Jane's assets because you could be paying the taxes on them.