Taxation of unearned income of minor dependents

• Published in: The Tax Adviser 1989-02, Vol.20 (2), p.73
• Main Authors: Boucher, Karen J, Raabe, William A
• Format: Article
• Language: English
• Subjects: Dependents; Growth stocks; Income shifting; Investments; Minor; Remainder interests; Savings bonds; Tax planning; Tax Reform Act 1986-US; Tax regulations; Taxation
• ISSN: 0039-9957

Because of the "kiddie tax" provisions of the Tax Reform Act of 1986 (TRA), traditional estate and gift planning techniques that emphasized the shifting of gross income onto the tax return of a child have become increasingly difficult to implement effectively. Nevertheless, if a minor's investments are properly structured, the special tax can be avoided entirely. Pertinent investments might be shifted into the following: 1. growth stocks and assets and growth mutual funds, 2. remainder interest in property, 3. Series EE savings bonds, 4. tax-exempt bonds and bond funds, 5. Government National Mortgage Association certificates, 6. closely held stock, 7. market discount obligations, and 8. certain life insurance products. The tax-oriented purpose of these investments should be to generate little or no income for purposes of the parental-attribution tax computation. Hiring a child, shifting income to children over 14, and minority income trusts are still viable options.