Kiddie tax changed to age 24

Heard about this on the Clark Howard show. A Google search turned up links to articles that still talk about the change to 18, not 24.

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you pay "Kiddie Tax," you need to act now!Clark wants you to know about a tax change going on in Washington D.C., which will affect upper middle-class and wealthy families. These families will set up a custodial account for the benefit of a son or daughter. These children were subject to paying a punitive tax for that money. At first, it was through age 14. Then it was moved to age 18. Just recently, it was bumped up again to age 24. That means that these people are now adults, possibly living on their own, and still paying this ?kiddie tax.? The good news is that there is an out. If you have a child with a custodial account, this year you can sell holdings and you?re only taxed five percent. After January 2008, that tax goes up to 35 percent. So, if your child is 18-23, make sure you talk to an accountant and get this taken care of this year. Get tax advice pronto to ensure you make smart tax moves this year and in future years.

Reply to
don
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don wrote: [...]

First, it's "punitive" only to the extent that all taxes are punitive -- it simply taxed the investment income at the parent's rate, nothing more. Given all the tax breaks for having kids, not providing yet another one doesn't seem unfair.

Second, the age extension is under age 19, or under age 24 if a full time student and not married filing joint. So "independent" adults living on their own (not full time students, or students who support themselves on earned income) are not affected.

One driving factor was to close a loophole where children could take advantage of the zero capital gains tax rate in 2008. The overall tax bill was intended to be revenue-neutral (breaks offset by increases).

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-Mark Bole

Reply to
Mark Bole

Only for long term cap gains, if the student's taxable income is less than $31,850.

What? The kiddie tax taxes the child's unearned income over $1700 at the parent's rate. So, interest is taxed at the marginal rate (up to 35% of course), but dividends and long term cap gains are 15% only. Where does he get 35% from?

Mr. Howard has his information a bit confused, even though the story was worth putting out there. He can use an editor to help improve his writing.

One should continue to manage a child's money to capture the $1700 in income/gains each year, and consider the 529 account if the money is earmarked for college.

Side note - Googling 'kiddie tax 24' (leave off the quotes) yields a good Forbes story published 5/30/07, as well as WSJ, and savingforcollege.com articles.

JOE

Reply to
joetaxpayer

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