Personal Financial PlanningOne of the most serious financial planning challenges confronting many parents is raising enough funds to send their children to college. Parents may want to explore the merits of tax planning as a means of accumulating money for this purpose. Shifting some of their income to their children is a popular way for taxpayers to raise their families' tax income. Income-shifting lowers the parents' tax rates by transferring some of the tax liability to their children who receive a more favorable treatment under the 'kiddie tax rules.' However, this college-funding technique also has some drawbacks that should not be overlooked, including the gift taxes that may be triggered if the parents transfer property to their children that is in excess of the annual gift tax exclusion. Other considerations are how to invest the money saved from reduced taxes and the taxability of the investment.
College planning: shake hands with the taxman.
One of the greatest financial planning challenges you'll ever face is funding your children's college education. Even high-income parents are frequently astounded by the astronomical costs. After you recover from the sticker shock, you might want to know that tax planning is an often-overlooked technique for funding your children's college education. For instance, before the 1986 Tax Reform Act, many high-income parents shifted some of their income to their children to maximize the family's a...