Today TaxMama hears from Jack in the TaxQuips Forum who is bursting with pride over his son. “We are in more of a position to help my graduating son financially than when he started 3.5 years ago. He’s very sharp with investments. So we’re looking for ways to develop these skills while building cash to pay down the loan. My question relates to tax strategies for helping him with the loan. What are some strategies where we can pay the least tax on what we use to pay off the loan?”
Sit down and talk to tax pro who is also a Certified Financial Planner (CFP). You’ll get the best of both worlds – investment income and tax planning.
Some investments to consider that have the least tax impact –
- Tax-free municipal bonds (your state).
- Rental real estate (income is sheltered by mortgage interest and depreciation)
- Real Estate Invesment trusts (REIT) or similar investments that invest in rental properties, not in notes – they have the same benefit as rental real estate.
Consider setting up the account as a partnership and issuing K-1s to each owner. Otherwise, only ONE of you will get the 1099s or K-1s under that person’s Social Security Number and you will have to issue 1099s to the other person or be SURE to report nominee income correctly so IRS knows who gets the other half of the income.
This could be a fun experience together – if you set up well.
Good luck – and congratulations!
And remember, you can find answers to all kinds of questions about investing jointly and other tax issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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