Some parents choose to place investments in their children’s names. These investments can be a good tax-savings strategy depending on your income bracket. Investment income includes interest, dividends, capital gain distributions and gains from the sale of capital assets (stock). If you plan carefully, each child’s first $950 of investment income will result in no tax. The next $950 of investment income will be taxed at the lowest rate of 10 percent.
It’s important to know that if the investment income exceeds $1,900, and the child is under the age of 19 (age 24 if a full-time student), he or she could be subject to “kiddie tax” rules. If your child will be subject to this tax, contact your tax professional for further advice.
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