Home Add to Favorite Contact Submit  
             29 March, 2024
 

    
Category:  Articles » Finances » Taxes

 

Sending Your Kids To College - Educating Your Children

Popularity:
         Views: 1636
2006-12-20 00:47:28     
Article by Ron Piner

What are parents to do in this financial climate in so far as educating our dear children? As always, the answer is right before our very eyes. We need only to look, listen, and seek knowledge that is understandable and practical. Welcome to my show and the MWIB series regarding financial studies. Please read and learn and be sure to ask lots of questions.

For those of you who haven’t heard, the “kiddie” tax is extended to the age of 18 starting in 2006. This means that if a child has more than $1,600 of unearned income (interest, dividends, etc), he or she will pay tax at the parent’s top marginal tax rate. Prior to 2006, the age was children under 14. The strategy was to try passing income down to the children to take advantage of the lower tax rates to help with funding education. The kiddie tax prevents this from happening.

To tell you the truth, I never thought much of this strategy anyway. I always keep my eye on the big picture leading my clients proactively through the mish-mosh of financial strategies. I feel the very same about the 529 plan. In the proper set of circumstances, the 529 plan works very nicely. If one happens to be quite wealthy, I think the 529 plan provides additional asset protection and wealth preservation when considering estate-planning issues. Because of one being wealthier, I think it is less troubling to me to duplicate strategies in a given portfolio. If one has a retirement plan along with a 529 plan, the investment strategies will be identical. This is unreasonable in my view, as middle income families can not afford to duplicate investment strategies. Instead, the middle income family is better off saving for education by adding to its portfolio outside of the retirement plan. This should be through a combination of tax exempt and high growth vehicles that will minimize tax consequences. By keeping excellent records and understanding such topics as the wash sale rules and capital gain and loss netting, one can further reduce exposure to income tax in the first place (see my article and instructional CD regarding capital gain and loss issues). I also think the 529 plan works for contributing grandparents.

Enough about my thoughts regarding the 529 plan. Let’s talk about some other strategies for educating our children. What if the family owns a business? I love the idea of putting children on the payroll I really, really do. The catch is, the child should perform some service for reasonable compensation. Suppose your child is paid $5,150 in 2006. This just happens to equal the standard deduction. The parent’s business will gain a deduction and sonny boy will not have to pay income taxes because the standard deduction will reduce taxable income to zero. This money can then be used to build junior a portfolio for college. In addition, if the parent’s business is unincorporated and so long as the child is a minor, there will be no social security tax to pay. Man, do I ever love this stuff. Even when the kid reaches the age of majority, I like this strategy. In many instances, the adjusted gross income of the parents will be too high to take advantage of the hope and lifetime learning credits. In this event, paying our beloved offspring will provide us a tax deduction at the business entity level and will provide income for the student. Remember that wages paid must be reasonable for services rendered. The student will then file his or her own tax return taking use of the standard deduction and one of the educational credits. Notice that I did not mention exemption allowance. This is because the exemption is allowed only to the parent as they are providing support for the child. The parent will be giving up the exemption in order to give the use of the educational credit to the child. Remember that the parent has already gained a deduction by paying wages to the child through the business.

What if there isn’t a business? In this case, my thought is for the parents to build their own portfolio using inside and outside retirement plan theories. Understanding capital gain and loss rules can help reduce tax exposure outside of the retirement plan and can allow for wealth building and having funds available for helping our children. The parents may be able to take the educational credits but can still pass it on to the child if tax planning dictates. The student may work while in school (a concept that has yet to kill any young student) and the educational credit could be of some benefit to he or she if the parent’s adjusted gross income is too high.

Don’t be concerned about the extension of the kiddie tax. And don’t be overly enthused by the 529 plan. Follow my lead and provoke deeper thought into how to mange educating your children with the other aspects of portfolio building. Use all of your attributes to their maximum potential. Now really, don’t you think this article is well constructed and carefully contrived? I told you my way is better.

Specialized in: Business Radio 1190 Wbis - Radio - Baltimore - Bloomberg - Brokered
URL: http://www.wbis1190.com
Print article      Bookmark this page
Related Articles 
How Much Will My Tax Deduction Be if I Donate My Car? (Popularity: ): Often one of the first questions a person has when deciding what to do with a car they no longer want is “What will my tax deduction be if I donate it to charity?” When you donate car to charity the amount you can claim on your itemized federal tax return depends on two things; the fair market value of your car and what the charity does with the car.The ...
Ways to Qualify For a UK Income Tax Refund (Popularity: ): How does a resident of the United Kingdom qualify for a fast online tax return? One third of Pay As You Earn employees are owed a repayment on their income taxes. There are many reasons why this may occur, but the main one is that the system is far from perfect.Consider some of the following scenarios. Anyone who has been employed for under a year are often due for cheap ...
Getting a Copy of Your Past Tax Returns (Popularity: ): Tax returns are part of our "important documents" when it comes to finances. If you want to get a mortgage or loan, you might be required to show copies of them. So, what do you do if you can't find the returns for a particular year? Well, there is no need to stress.The first thing to understand is the IRS is your friend in this regard. For all the discussion ...
Guidance on Creating Tax Receipt (Popularity: ): A tax receipt is very important to simply keep track of the various types of taxes paid by you to the government.Here is how you can actually create a tax receipt.The first thing that you have to do is simply keep track of your tax payments. When you pay a tax you must get a receipt, you should keep it with you always.Use the information provided on the current receipt ...
Tax Evasion - This is What You Get For Doing It (Popularity: ): Paying taxes can be hard, but not paying them at all or doing something that could be classified as an act of tax evasion can make things worse, if you're caught that is. I'm not saying that you should use "methods" that can keep you from making the payments; I'm warning you or telling you that there will be corresponding penalties for tax evasion. Now in general, there are two ...


Related Business 
Cherbear's Den (Popularity: ): Christian children's book author shares her books and illustrations while sending kids through the kid-safe caverns of the web. Animation Trail devotions for kids, In Faith devotions for adults.
Children's Nature Institute (Popularity: ): Dedicated to educating kids to respect and appreciate the natural environment.
Children Games Ideas (Popularity: ): Provides kids games ideas. Explore various fun children games, such as horse games for kids, kids board games, birthday party games, kids video games, Christmas party games, kids basketball games and Halloween games. Get ideas for educational games, including team building games for kids, math games, kids computer games, and kids science games.
Just Kids Furniture (Popularity: ): Just Kids Furniture is a family run kids furniture business. We manufacture and sale Australian made custom design kids furniture. Our wide array of kids furniture and teens furniture include children bedroom furniture, kids beds, kids tables, kids bookcases and many other custom furniture for kids and teens. Just Kids Furniture is proud to be one of the best kids furniture stores in Australia. Come to our kids furniture store ...
Internet For Kids (Popularity: ): Find Kids safe Internet browser, Internet filter for children, free download, and Safe children browser at Candybrowsers.com. Provides safe and secure tool for kids to safely surf the net. Use our kid safe browser (Internet for Kids) for finding Educational Software for Kids, Learning Website for Kids and more. We offer best and safe browsers for using internet and protecting kids on Internet.
Facilities For Children (Popularity: ): Kids parties and kids parties entertainers. Organize parties for children at home, in kindergartens, companies, hotels, hostels in Romania with entertainers kids parties. The company offers children.
Playful Planet (Popularity: ): Playful Planet aims to support families in raising healthy kids, by learning the importance of exercise through our children and kids yoga videos. We offer kids yoga dvd to help your children experience yoga in a playful manner. Yoga with kids dvd becomes more exciting and fun for your kids.
KIISS - Kids Involuntarily Inhaling Secondhand Smoke (Popularity: ): KIISS is dedicated to eliminating kids' involuntary inhalation of secondhand smoke by educating parents and the public on what secondhand smoke does to children. Information on secondhand smoke, California smokefree workplaces, smokefree cars, smokefree homes, and smokefree restaurants.
Cooler Bags and Picnic Blankets (Popularity: ): Kids Do Travel offer Products, Travel Tips, and helpful information to make travel easier with kids because Kids Do Travel are Specializing in Travel Gear, Travel Accessories, kids suitcases, They are based in cambridgeshire, UK. Travelling with children can be wonderful but it can also be a challenging experience, to travel comfortably with kids once visit to Kids do Travel.
Wheelchairs For Children (Popularity: ): We offer a wide range of products for copii. Diferite types of wheelchairs for children, swings for children, pre-children, cars for kids, games for children, children furniture Peter.