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Show Rules change on 'Kiddie Tax' CONTINUED FROM PREV. PAGE ity shareholder in a family owned business set up as an S-Corporation. S-Corporation. As an S-Corporation all profits are taxed to the shareholders sharehol-ders on their individual income tax returns. Again, the result is to shift these earnings to the dependent who is taxed at a much lower rate. Under the new tax laws children under the age of 14 are limited to $1,000 of investment income without with-out it being taxed at the parent's highest rate. Investment income is defined as all income other than wages, salaries, fees or other amounts received as direct compensation com-pensation for work performed. That would include interest, dividends, di-vidends, and partnership and S-Corporation S-Corporation income, as well as capital gains on sales of investments. invest-ments. Tax planning for this aspect of the law is to control the amount of investment income to your children chil-dren who are under 14 years old. These techniques are still available for your older children and can be a very effective tool for children still in college or on a mission. The gift placed in the student's savings account can provide the college and-or living expenses at a much lower tax rate than you would have to pay if you were paying all of the expenses yourself. When the education edu-cation is completed the money is simply gifted back to the parents. The new tax laws are the most complex ever. Questions should be taken to your tax advisor or business busi-ness consultant. |