By using a pattern of long and short sales to limit your exposure and produce capital gains, you can gift the gains to your child and retain the losses.

Specific Details

The parents shifted $5,000 of income to their child by using a pattern of long and short sales to produce capital gains and then gift the gains to their child. Since the parents income was taxed at the 20% tax bracket, the income reduction may decrease their income taxes by $1,000 ($5,000 x 20%). Since the childs taxable income was taxed at the 0% tax bracket, there may be no tax on the income. Therefore, because of the income shifting, the total family tax savings may be $1,000.

Potential Savings

If you are in a combined (federal, self-employment, and state) tax bracket of 20%, you could reduce your taxes up to $200 for every $1,000 of income reduction by using a pattern of long and short sales to produce capital gains and then gift the gains to your child.