Are your kids subject to the Kiddie Tax? - Tax Tip of the Week

In 2009, dependent children (up to age 18, or age 23 if a full time student) with investment income exceeding $1,900 will be subject to the Kiddie Tax.  This means the income will be taxed at the parent’s highest marginal tax rate.It wasn’t that long ago that the Kiddie Tax went away at age 13.  Now, you must make some financial and tax planning decisions for your college-age students as well.The tax needs to be calculated using both Form 8615 (child’s return) and Form 8814 (parent’s return) to determine the lowest tax liability.Now that the Kiddie Tax has been extended up to age 23, one tax planning strategy would be to invest a larger portion of the child’s investments in Section 529 education savings programs.  Earnings in a 529 plan are not subject to tax, and distributions if used for education expenses are not taxable.Give us a call to discuss the details.Give us a call to discuss other year-end tax planning strategies.In Dayton, call 937-436-3133 and in Xenia, call 937-372-3504. Or visit http://www.bradstreetcpas.com....until next week.