Tax Guru – Ker$tetter Letter

From a reader:

Subject: partially dodging the revised Kiddie tax

 

California has not adopted the increase to age 18 for the Kiddie Tax.  This gives Californians an opportunity to realize gains this year and pay only 15% federal tax.  That’s more than the 5% it would have been without the retroactive tax increase, but it’s less than the 24.3% it would have been had California conformed to the new federal rule.

 

If California conforms for 2007, people with teens aged 14 to 16 this year will wish they had realized those gains in 2006.  Taking the gains now avoids another 9.3% tax hike.

 

You might want to check out which states have conformed and which have not, and advise your readers.  Please don’t quote me on this one if possible.  I’d rather you take the credit, since you’ll be the one doing the research and writing.

My reply:

That’s a very interesting loophole for people to consider.  I don’t have time to research each state’s conformity with the federal law, but I hope tax pros around the country are checking on whether their states will allow for a similar maneuver.

Thanks for writing.

Kerry Kerstetter