Tax on Business

To prevent taxpayers from exploiting loopholes and suspected tax avoidance methods, many provisions exist that limits the reduction of one’s own taxable income or offsetting income towards a different tax bracket. One of these prevention procedures is called the Kiddie Tax. Designed to keep parents from reallocating investment income over to their children to take advantage of their lower income tax bracket, this tax is structured as tiers for the amount of unearned income the child is receiving from these investments. In 2014, the first $1,000 reported on the return that is in possession by your child is tax free. The next $1,000 is then taxed at the child’s rate. Anything over this combined $2,000 is then taxed at the parent or guardians’ marginal tax rate.First introduced in the Tax Reform Act of 1986, this tax also has classifications in which the child must fall into in order for the tax to apply such as being under the age of 18. The tax will also apply if the child is 18 at the end of 2014 and he or she has earned income that is less than or equal to half of their support for the tax year. If the child is a full-time student from the ages of 19 to 23 at the end of 2014 with an earned income that is less than or equal to half their support, then the tax will apply here as well. These specifications are assuming that at least one of the child’s parents or guardians were alive at the end of this tax year. The tax can then be added on to the