Not earning as much total income as their parents do puts the kids in a lower tax bracket.Consequently, on the income from the children’s assets the family saves ten or fifteen percent on taxes.Shifting income is a great idea.It is not unusual to see professionals rent their business equipment from a second company they have formed to hold that equipment.The children in the family own the company that holds the equipment.Thus, the professional’s business gets a tax deduction for paying the rent and the kids get money.More money ends up in the family’s pocket, because the children are making less money than the professional, so they pay less in taxes.

Dad ends up with a lower AGI, which is an extra benefit achieved by shifting income and thereby lowering Dad’s adjusted gross income. Because an individual’s adjusted gross income is the key element in determining an individual’s tax bracket, under new tax laws having a lower AGI is a big deal.

The "kiddie tax" was passed by Congress some time ago, to stop parents from shifting income to the children. Shifting income is still a great tool in the tax fight, but it has had its wings clipped. The type of income transferred to the children is "unearned income". They didn’t earn it by working, it came from rent.

It didn’t come as a result of their labor. It resulted from rent paid to them. Unearned income is taxed by the kiddie tax it is not required on earned income. Earned income is the income an individual earns by working with sweat equity.

Children up to 18 years of age will be taxed at Daddy’s rate on any unearned income under the kiddie tax. The age was 14 years until just recently. It is only 18 years old, as long as the child is not a student who is claimed as a dependent by Mom and Dad on their tax return, then the age becomes 24. The tax is discriminatory. Stocks, bonds, real estate, and other income producing assets will be taxed at Dad’s rate, even if your child has worked hard and bought them with his or her own money. It doesn’t matter that Dad had nothing to do with the acquisition of the asset.

An unearned income tax credit of around $2,000 each year is given to each "child". Therefore the IRS won’t tax the first $2,000 of unearned income. The kiddy tax doesn’t kick in, until the $2,000 limit is reached by each child. I talk about other ways to get income to your kids and I give an in depth discussion on the kiddie tax in my study course the Accumulation and Preservation of Wealth.

There are many ways to "get income down to the children" without having kiddie tax kick in. Hire the kids, for example. If you hire your children, you will avoid paying lots of the payroll taxes. The trouble is how can you justify paying your children big bucks when they don’t actually work the hours? There are lots of ways to justify paying the kids bigger money.

However you do your tax structuring, you need to do it. The major impediment to your financial success in both your personal life and your business life is the IRS. Understanding the legal traps and tricks, will enable you to able to manage your taxes.

The best way to be in command of your taxes is to know the legal traps and tricks. Don’t miss a detailed explanation of these strategies in the Accumulation and Preservation of Wealth course.