Evan, who has a marginal tax rate, is considering giving securities to his son, Todd, who is under 14 years.

Question

The securities will yield $500 of income every year. If Evan makes the gift, then:

a - Todd must pay a gift tax based on $500.

b - family income after taxes will increase by $140 each year, assuming Todd would have no other taxable income.

c - the family could deduct $500 from its income each year, assuming Evan's wife agrees to the gift.

d - there will be no change in taxes, assuming the family files a joint return.

Answer 1

d.  Due to the "Kiddie Tax", Todd will be taxed at the same rate as his parents.

Answer 2

The answers to your questions are found in publication 950 and publication 929.

One of the answers is sort of correct, though there is no such thing as "family income."  The income belongs to Evan now.  If he gives the asset to Todd, it's not his any more.