The Tax Reform Act of 1986 first brought about the concept of taxation on the investment and unearned income for those individuals over thirteen and under seventeen years of age. It is commonly known as the “Kiddie Tax.” Originally the law only covered children over fourteen, as children under that age cannot legally work. This meant that any income of a child under fourteen was derived from dividends or interest from bonds. More recently, the age limits were revised to include children who hadn’t reached age nineteen by the close of the tax year, and full-time students under age twenty-four whose earned income was less than half of their own support, had at least one living parent, and didn’t file a joint return. In the original tax bill, this tax is imposed on children whose investment and unearned income was higher than the annual threshold. Under the old law, the first $1,050 of a child’s income is tax-free and the next $1,050 is taxed at 10%. Furthermore, any unearned income over the $2,100 was taxed at the parents’ rate if it was higher than that of the child. Earned income, like wages from a job, were still taxed at the child’s lesser rate. In other words, the earned income from a job and the unearned investment income up to $2,100, less the standard deduction, was taxed at the child’s rate. This encouraged parents and grandparents to make financial gifts to minors in the form of appreciated stock, assets from taxable estates, income transfers, and inherited IRAs.
One of the major complications facing aging individuals is the passing down of wealth to the next generation without creating large tax implications. The dynasty trust is a straightforward estate planning technique that can substantially reduce taxes.
Identity theft isn’t a new crime by any stretch of the imagination. With the use of electronic fund transactions, electronic tax filing, and the general increase of personal data being available online, identity theft is easy to perpetrate and has increased significantly in the last few years.
By now, most people have heard the term HSA or Health Savings Account. But what is it? A Health Savings Account combines a high deductible health insurance plan with a tax savings account. It operates somewhat like a Flexible Spending Account. An FSA allows for pretax income to be redirected into an employer-sponsored plan with limitations placed upon it by the employer, but not exceeding $2,600, and does not require a high-deductible health plan to be attached to it. This plan reimburses you for qualified medical expenses. The main drawback to an FSA is that it requires that you utilize the funds in the given calendar year. You are not allowed to carry over the excess into the next year, with limited exceptions.