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Use a minor’s trust to avoid major ‘kiddie tax’ headaches

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in Small Business Tax,Small Business Tax Deduction Strategies

One of the tax laws passed this year—the Tax Increase Prevention and Reconciliation Act (TIPRA)—has caused a lot of grumbling among tax-savvy parents. Reason: TIPRA generally extends the “kiddie tax” an extra four years for every child.

Strategy: Create a minor’s trust (also called a Section 2503 (c) trust) for your kids or grand kids.With this type of trust, all of the income is taxed directly to the trust. So, the kiddie tax never comes into play! A minor’s trust has a distinct advantage over the better-known custodial account because the trust can continue past the age of majority in the state where you live. Therefore, you don’t have to worry about children squandering the funds in their accounts.

A minor’s trust has a distinct advantage over the better-known custodial account because the trust can continue past the age of majority in the state where you live. Therefore, you don’t have to worry about children squandering the funds in their accounts.

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