After children reach age 14, some income shifting is possible. Each child is entitled to a full 15% federal tax bracket, which covers income up to $26,250 this year, for single taxpayers.
Such children get a bargain 10% rate on capital gains, too. Thus, parents who intend to sell appreciated securities can give those securities to their children after age 14 and have the children sell the securities.
A married couple can give up to $20,000 worth of assets each year to a child without incurring a gift tax. You and your spouse might give your 14-year-old $20,000 worth of mutual fund shares that you bought for $8,000 several years ago. If you sold those shares, the federal tax on the $12,000 gain would be $2,400, at 20%. Your teenager can sell the shares and pay only $1,200, at 10%. Again, state tax savings may be available, too.