CHAPTER 26—FAMILY TAX PLANNING
Grandfather GF, a single taxpayer, has current year taxable income of $300,000. His granddaughter
GD, also single, has current year taxable income of $210,000. An income shift of $15,000 from GF to
GD during the current year would not result in any tax savings to the family.
Both GF and GD are in a 33 percent marginal tax bracket.
p. 16-3 and § 1(c)
In the current taxable year, married couple H and W give a completed gift of a $20,000 certific-
ate-of-deposit bearing simple interest to their 15-year-old child, C. The interest on the certificate paid
to C during the current year totals $1,600. Under the assignment-of-income doctrine, the $1,600 must
be included in the gross income of H and W.
Because H and W made a completed gift of capital to C, C is the owner, and therefore the income from
the capital (i.e., the interest) is taxed to C.
Married taxpayers have the option of filing a joint income tax return or filing as two single taxpayers.
Married taxpayers may file a joint return or they may each file a return using the married filing separ-
ately rate schedule.
footnote 6, p. 16-4, and § 6013
D, the seven-year-old daughter of Mr. and Mrs. M, is a very successful child model. Because Mr. and
Mrs. M provide more than 50 percent of D's support and claim her as a dependent, D's earnings as a
model must be reported on her parent's income tax return.
A child who earns income is a taxpayer in his or her own right, even if claimed as a dependent on an-
other taxpayer's return.
p. 16-6 and Reg. § 1.73-l (a)
Individual S is the sole shareholder of Corporation S. The corporation employs S's college-aged grand-
daughter as secretary-treasurer for the summer, paying her $25,000 for three months work. If the In-
ternal Revenue Service determines that the granddaughter is not a bona fide corporate employee and
disallows the entire $25,000 salary deduction, the $25,000 payment could be reclassified as a dividend
to the granddaughter.
The constructive dividend would be to grandfather S. The receipt of the funds by granddaughter would
be considered a gift from S.