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Ways To Save With The New Kiddie Tax Rules

3/25/2019

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The kiddie tax isn't just child's play. Due to recent tax law changes, children with substantial income may end up paying more in taxes than before. Fortunately, you can take steps now to minimize the kiddie tax impact in future years.
 
How the kiddie tax works
 
Unearned income (e.g., investment income) above an annual threshold that is received by a dependent child under 19 years old (or a full-time student under 24 years old) is taxed differently than the child's other income. For 2018 returns, the kiddie tax threshold is $2,100.
 
For 2018 through 2025, the calculation is based on the tax rates in effect for trusts and estates. Notably, the tax brackets for estates and trusts are much more compressed than those used under prior law, when the excess income was taxed at the top tax rate of the child's parents.
 
Because you reach the higher rates faster with more compressed tax brackets, the new kiddie tax calculation may produce a higher tax than it did in the past. For example, the top 37 percent tax bracket on 2018 returns for trusts and estates kicks in when income exceeds just $12,500, while the top rate for joint filers begins at $600,000.
 
Here are some tips for reducing or eliminating the kiddie tax:
  • Keep your child's income below the 2019 threshold of $2,200.
  • Have your child make investments that provide tax-favored qualified dividends.
  • Allocate part of the child's portfolio to tax-free municipal bonds and muni bond funds.
  • Emphasize investments (e.g., growth stock) where the child's income is deferred until the age when the kiddie tax no longer applies.

Kiddie tax implications are complex. Call if you have questions about your situation.

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 

Do you need assistance with your business and/or personal tax returns? Would you like to have a trusted source for your accounting, allowing you additional time to focus on increasing your business? Do you use QuickBooks, or plan to in the future, for your accounting? We include these in all our service packages, customized to fit your personal or business needs.   
 
We are currently accepting new clients. Your initial consultation is free, so you have nothing to lose and everything to gain. Our experienced staff is available to help you streamline your accounting, giving you more free time for yourself. Set up an appointment today by calling (630) 320-3720 or email us at info@monarchaccountinggroup.com. 
 
For more free resources, such as Tax Rates, Tax Organizers, and Record Retention Schedules, access our website www.monarchaccountinggroup.com.

Monarch Accounting Group, Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527
Phone (630) 320-3720
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Monarch Accounting Group Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527-7836
Email: Info@MonarchAccountingGroup.com


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  • Home
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