You can also help minimize your federal income taxes by shifting income to family members who are in a lower tax bracket. For example, if you own stock that produces a great deal of dividend income, consider gifting the stock to your children. After you’ve made the gift, the dividends will represent income to them rather than to you. This may help lower your tax burden. Keep in mind that you can make a tax-free gift of up to $13,000 per year per recipient without incurring a federal gift tax.
Under these rules, for children (1) under age 18 at the end of the tax year, (2) between ages 18 and 19 at the end of the tax year whose earned income didn’t exceed one-half of their own support for the year (excluding scholarships), or (3) full-time students between ages 19 and 24 at the end of the tax year whose earned income didn’t exceed one-half of their own financial support (excluding scholarships), any unearned income over $2,100 is taxed at the parent’s marginal tax rate.
Also, be sure to check the laws of your state before giving securities to minors. Other ways of shifting income include hiring a family member for the family business and creating a family limited partnership. Investigate all of your options before making a decision.
