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Find tax shelter when laws collide, but don’t duck and cover

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in Small Business Tax,Small Business Tax Deduction Strategies

Two significant tax-law changes are set to collide in 2008: the higher age limits for the “kiddie tax”and the zero percent tax rate for low-bracket sellers of capital assets. But you don’t have to run and take cover.

Strategy: Assess the situation for children in their late teens or early 20s. For many families, it makes sense to pile up security sales before Jan. 1. For others, holding back is the best action.

Let’s take a brief look at the two law changes.

Tax law change No. 1: Under the kiddie tax,unearned income received by a child in a low tax bracket is taxed at the top tax rate of the child’s parents to the extent it exceeds an annual threshold. The threshold for 2008 is $1,800 (up from $1,700 for 2007).

But the kiddie tax isn’t just for kids anymore. Prior to 2006, it only affected children under age14. Then the age limit was raised to 18 through 2007. Beginning in 2008, the kiddie tax applies to any ch...(register to read more)

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