• Understanding Tax Terms: the kiddie tax – What you know can help you

    Understanding Tax Terms: the kiddie tax – What you know can help you

    In 1986, a tax law was introduced to block parents from transferring investments to their children as a technique to lower their taxes. This law, commonly known as the kiddie tax, ensures that this unearned income is taxed at a parent’s, usually higher, tax rate. But there is still a tax planning opportunity. The term “kiddie tax” was introduced by the Tax Reform Act of 1986. The IRS introduced this rule to keep parents from shifting their investment income to their children and have this income taxed at their child’s lower tax rate. The law requires a child’s unearned income

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  • Reduce Your Income: Hire Your Kids

    Reduce Your Income: Hire Your Kids

    If you run a small business that is not incorporated, consider hiring your kids to reduce your tax bill. Here’s why. If you own your own business, by hiring your children you can save in the following ways: Salaries paid to children under 18 are not subject to Social Security or unemployment taxes (in most states). No Federal withholding taxes are required if the child is under age 21 and earns under $5,950 per year. Even if the child must pay taxes, the child’s rate of tax is normally lower than your own rate. You should not have to pay

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