While certain income of a minor may now be taxed at the parent's tax rate, discuss how income shifting may still be accomplished and any constraints that may exist on income shifting.
Answer:
1. Children may own stock in the family business. Dividends may be distributed to the children, but these may be taxed at the parents' rates.
2. A child may work in the family business. Income earned by the child would be taxed at the child's tax rate. Income earned by the child would be subject to reasonable compensation limits.
3. Series EE U.S. savings bonds may be purchased in the child's name to mature after the child reaches age 24. A gift of the bonds to the child may be subject to gift tax.