Despite the broad reach of the “kiddie tax,” income-splitting with family members is still a good tax idea for wealthy individuals.
Strategy: Step up efforts to split income with family members.
To sweeten the idea of income-splitting even further, when you shift income to low-taxed family members, you may avoid the new 3.8% surtax on “net investment income” (NII).
Here’s the whole story: If you own investment assets like securities and real estate, you’re taxed on the annual income you receive in your high tax bracket. In comparison, other family members—such as your children and grandchildren—are likely to be taxed in a lower tax bracket. Therefore, shifting investment assets and the corresponding taxable income to younger generations can save tax for the family unit.
This strategy became even more attractive in 2013 when tax rates on high-income individuals were raised. Currently, the top tax rate on ordinary income is ...(register to read more)