Not only has the rate on long-term gains been dropped from 20 percent to 15 percent, by the 2003 tax act, low-bracket taxpayers have a 5 percent rate on long-term gains as well as dividends. Therefore, income shifting may merit more attention now.
Before you sell appreciated stock, for example, you might give the shares to children aged 14 or over, assuming gift tax issues are considered. Then the children could take the gains at a 5 percent rate. It’s even possible to begin planning for 2008, when people in low tax brackets are scheduled to have a zero tax rate on capital gains.
What’s more, you may be helping your parents. If so, income might be shifted to low-bracket retirees. Your parents could be given appreciated securities, for a low-taxed sale, or dividend-paying stocks, for lightly-taxed income. Such stocks might eventually come back to you, via bequests, with a basis step-up to eliminate taxes on unrealized appreciation.
