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The Gifting Season: Gifting and the Kiddie Tax

The Gifting Season: Gifting and the Kiddie Tax

December 20, 2016

Many folks may not know that thanks to the gift tax exclusion” it is possible to “gift” a certain portion of your income — up to $14,000 in 20161 — to as many recipients as you can afford without being considered taxable income for the recipient. In addition, if your spouse also gives $14,000, then $28,000 can pass to each child, grandchild or any other person you choose. The recipients don't even have to be related to you. This “gift” has the potential to reduce your taxable income dramatically.

Be cautious though, of transferring appreciated investments to others as a gift. Those under the age of 19 (24 if a full time student) receiving over a certain amount of unearned income may be subject to the “Kiddie Tax.”

  • In 2016 if your child is under age 19 or if a full-time student under age 24 and has unearned income of $1,0502 or less, there is no tax.
  • If the unearned income is between $1,051 and $2,100 in 20163 the income is taxed at the child's tax rate.
  • If your child has more than $2,100 in 20164 of unearned income per year, he or she will be taxed at your rate, which is probably higher than the child's income tax rate.

Before gifting to individuals in an effort to reduce your tax liability, speak with your FAS financial advisor and your accountant for guidance.

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