Minimizing the Impact of Kiddie Tax Under Tax Reform

Oct 26, 2021
Tax and Accounting


Welcome to Life Designers, your trusted partner in business and consumer services consulting. In this comprehensive guide, we will explore effective strategies to minimize the impact of kiddie tax under tax reform. Our team of experts is dedicated to providing you with valuable insights and solutions to help you navigate the complexities of the tax system.

Understanding Kiddie Tax

Kiddie tax refers to a set of tax rules that apply to unearned income of children under a certain age. It aims to prevent high-income individuals from shifting their income to children in order to lower their tax liability. With tax reforms in place, it is crucial to understand how the kiddie tax rules have changed.

Implications of Tax Reform

The Tax Cuts and Jobs Act of 2017 brought significant changes to the tax code, including modifications to the kiddie tax rules. Under the new law, unearned income of children is no longer taxed at their parents' tax rates. Instead, it is now subject to the tax rates applicable to estates and trusts.

This change has potential implications for families seeking to minimize the impact of kiddie tax. It is essential to explore proactive strategies that can optimize your tax planning and ensure you are taking advantage of available opportunities.

Effective Strategies for Minimizing Kiddie Tax

Create a Family Limited Partnership or LLC

One effective strategy for minimizing kiddie tax is setting up a family limited partnership or limited liability company (LLC). By transferring income-producing assets to the partnership or LLC, you can allocate income to family members in lower tax brackets, reducing the overall tax burden. This strategy requires careful planning and the assistance of a knowledgeable advisor.

Utilize Educational Savings Accounts

Educational savings accounts, such as 529 plans, can be utilized to minimize the impact of kiddie tax. By contributing to these accounts, you can grow funds tax-free, specifically designated for educational expenses. This not only provides a tax advantage but also helps mitigate the impact of kiddie tax on unearned income.

Implement Trusts

Trusts can be a valuable tool in minimizing the impact of kiddie tax. By establishing a trust, you can transfer assets and income to the trust, which can be distributed to beneficiaries in a tax-efficient manner. Working with an experienced trust advisor can ensure you set up the right type of trust and maximize tax benefits.

Explore gifting strategies

Gifting strategies can play a significant role in minimizing kiddie tax. By transferring assets to children and taking advantage of annual gift tax exclusions, you can shift income to family members in lower tax brackets. It is crucial to consult with a tax professional to understand the implications of gifting strategies and ensure compliance with IRS regulations.

Take Advantage of Tax Credits

Maximizing tax credits available to your family can also help minimize kiddie tax impact. Research and identify applicable tax credits, such as the Child Tax Credit and Education Tax Credits, and ensure you meet the eligibility criteria. Leveraging these credits can effectively reduce your overall tax liability.

Regular Review and Planning

With the ever-evolving tax landscape, regular review and planning are crucial to ensure you are minimizing the impact of kiddie tax. Stay informed about changes to tax laws and seek professional guidance to identify new opportunities for optimization.


Minimizing the impact of kiddie tax under tax reform requires a strategic approach and informed decision-making. Life Designers, as a leading business and consumer services consulting company, is committed to assisting you in navigating the complexities of tax planning. Contact our team of experts today and discover how we can help you achieve your financial goals while minimizing tax liabilities.