Transcripts

"Kevin McCormally's Tax Tips"-The Kiddie Tax Crackdown

SUSIE GHARIB: With the end of the year looming, it`s time to get your 2007 tax planning in order and our tax guru Kevin McCormally is here to help. He`s editorial director at Kiplinger`s Personal Finance. In tonight`s tax tips, some last-chance moves to dance around the kiddie tax crackdown.

KEVIN MCCORMALLY, EDITORIAL DIR., KIPLINGER`S PERSONAL FINANCE: 2008 was supposed to be a great year for family tax planning. That`s when the capital gains rate for folks in the 10 percent and 15 percent tax brackets falls to a glorious zero percent. Many families have been arranging things so stock or other appreciated assets owned by low-tax- bracket youngsters or transferred to them as gifts from their parents could be sold in 2008 for tax-free profits.

The one fly in the ointment was the kiddie tax, the rules that tax a child`s investment income at the parents` rate. At first, the kiddie tax disappeared when a child reached age 14. Then a couple years ago, Congress extended the bite through age 17. Still, there was a chance for families to save money by having kiddies 18 and older sell for tax-free gains -- to pay college bills, perhaps. But Congress stepped in earlier this year to put the kibosh on that. Starting next year, the kiddie tax will apply to 18-year-olds, too and even to most full-time students under age 24.

That pretty much slams the door on this lucrative loophole, but not quite. You still have time to save some money. If you transfer stock or other appreciated assets to an 18- to 23-year-old and have him or her sell it before the end of this year, the capital gain will likely be taxed at just 5 percent. Not quite as sweet as zero, but still better than the parents` 15 percent capital gains rate. This could pay off for both parents and grandparents who are planning to help with college bills or other big expenses. Your broker can help you with the details of transferring ownership of the stock or other asset. I`m Kevin McCormally.