Shift income to your child to reduce taxes

One proven way to reduce taxes is to shift a portion of your income to someone in a lower tax bracket.  Here are some ideas to achieve that by shifting income to your child.

• Give investments to your teenage child.  If you give investments to your child aged 14 or older, the investment income will be taxed to your child at his or her tax rate.  The first $750 of income will be sheltered by his standard deduction.  Beyond that, he'll pay tax on the investment income starting at a 10% rate.

  This strategy can also be used if you're planning to sell appreciated assets.  Although your child will have the same capital gain as if you'd sold the investment, his capital gains tax could be as low as 8%.

  This year's limit on tax-free gifts is $11,000, so you and your spouse together can give investments valued at up to $22,000 to each child.  The earlier in the year you give assets away, the more income you may be able to shift to your child to be taxed at a lower rate.

  Caution: Beware of the "kiddie tax" imposed on children under 14.  If your youngster's investment income is more than $1,500, the excess will be taxed, not at your child's lower rate, but at your highest tax rate.

• Employ your child in your business.  Your business can get a tax deduction for the wages paid, and depending on your child's total income, her wages could be tax-free.  Just make sure that your child does a legitimate job and is paid at a rate that's reasonable for the work performed.