Rules Regarding The Kiddie Tax

The Small Business and Work Opportunity Tax Act of 2007 does offer some juicy tax breaks to entrepreneurs. But it also includes a potential headache: an expansion of the kiddie tax, which limits the amount of investment wealth that parents can shift to a child to take advantage of the youngster's lower tax rate. In tax year 2007 your child can report only about $1,700 of passive investment income before triggering your tax rate (the amount rises annually with inflation). Congress is also tinkering with the age limits. In 2006 the cutoff age for kiddie tax purposes was increased from 14 to 18; the latest change, which takes effect in tax year 2008, raises the age to 19 - and up to 24 for full-time students.

You Qualify For the Tax Break If:

1. In tax year 2007, your child reports under $1,700 in passive investment income (amounts over that trigger your tax rate).

2. In 2006 your child was 18 or younger. In tax year 2008 the age rises to 19 years (up to 24 for full-time students).

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