If you have college-age children, consider appreciated securities for year-end gifts. If the child will be 18 before the end of 2007, he or she can sell those securities and be taxed as a single individual on the resulting capital gain. The tax rate will be only 5 percent, as long as the child has no more than $31,850 of long-term capital gains in 2007.
Say you have $12,000 worth of stock with a $4,000 cost basis. You can give the shares to your 18-year-old daughter. If she sells the shares by year-end, she will owe only 5 percent tax on the $8,000 long-term gain, assuming her taxable income for the year is below $31,850. After paying $400 in tax on the sale, your daughter will net $11,600 that can be used for college bills.
You need to take advantage of this strategy in 2007. The rules for 2008 will increase the age of youngsters who will be subject to kiddie tax. For most full-time students under age 24, no more than $1,800 will be taxed at special low rates.
