In 2008, 2009, and 2010, low-income taxpayers will owe no tax on long-term capital gains and on most dividend income. A recent change in the law limits college students’ use of the 0 percent tax rate but some tax-saving strategies remain.
* In each of the next three years, take full advantage of the 0 percent tax rate. Make sure that your minor children have $1,700 worth of investment income each year, consisting largely of dividends and long-term gains. Little or no tax will be due. (That $1,700 threshold may be increased to $1,800 in 2008 or 2009.)
* Low-income taxpayers can have much more investment income taxed at the 0 percent rate in 2008-2010 if they are at least 19 and not full-time students. Therefore, it might pay to transfer appreciated assets to recent grads, to youngsters not going to college, and to children who are still in school after age 23. As long as their taxable income is below $33,000, they’ll be able to sell those assets and owe no tax.
* Remember that the "kiddie tax" rules don’t affect other family members who are over 23. As a result, you can give dividend-paying stocks and appreciated securities to your parents, if you’re supporting them. If your parents have a low income, they can use the 0 percent tax rate that will be in effect for the next three years.
