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The Truth About Personal Finance (Collection) by Kay S. Bell, Steve Weisman

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Truth 38. Accounting for the kiddie tax

You’ve probably heard of the “kiddie tax.” Perhaps you’re aware that it has something to do with a youngster’s investment income.

Maybe you think it’s a special tax benefit for these forward-thinking youngsters who are already building a nice portfolio.

You would be wrong. Despite the nickname, the so-called kiddie tax doesn’t treat young investors’ with kid gloves. The tax is, in fact, designed to make sure the IRS gets as much tax money from such investments as possible.

The kiddie tax was created in 1986 because some parents had been putting investment accounts in a child’s name so that the earnings would be taxed at the youth’s low tax bracket rather than at the adults’ higher rate.

To stop ...

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