Lisa Kohler, MD - AkronCantonMDNews

3. The child has unearned income in excess
of the threshold ($1,800 for 2008).
4. The child falls under one of the following
three age rules.
• Rule 1 (under Age 18). The child is not
age 18 at year-end.
• Rule 2 (Age 18). The child is age 18 at
year-end and does not have earned in
come in excess of one-half of his or her
support.
• Rule 3 (Age 19-23 and Student). The child
is age 19 through 23 at year-end and: (1)
is a student and (2) does not have earned
income in excess of one-half of his or
her support. A child who attends school
full-time for at least five months during
the year is considered to be a student.
Despite the new rules starting in 2008,
there are several things that can be done
to mitigate the effect of the Kiddie Tax.
First, once a child’s investment income
exceeds $1,80 0, avoid giving them
anymore income-producing property
until the year the child reaches age 24
or has completed his or her education,
whichever is earlier. Second, do not sell
appreciated investments until after the
child has reached the point when they
are no longer subject to the kiddie tax.
Third, choose investments that generate
tax-free or tax-deferred income (i.e.,
municipal bonds, U.S. Savings Bonds,
CDs, insurance policies and growth
stocks). Finally, consider a gift to a §529
college savings plan. The Kiddie Tax
rules make these accounts more attractive
because assets are removed from the
parent’s estate, contributions may qualify
for a state tax deduction and children
pay no tax when funds are withdrawn
for education.
Even if you do everything you can, but
still get hit with the Kiddie Tax and your
children are forced to pay more federal
tax, the silver lining is that the Ohio taxes
are unaffected.
Mike Livesay is a CPA and principal with
Weidrick, Livesay, Mitchell & Burge, LLP, in
Bath. ■
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GREATER AKRON/CANTON M.D. NEWS JANUARY-FEBRUARY 2008 | 37