Beginning in 2008, children who are still shown as dependents on the parent's return, will pay tax on their investments at the parent's rate. Children and full-time students can earn a maximum of $1800 in investment income and avoid tax but anything over that amount and they pay at your rate. Be careful to spread investments among all of your children to stay under the earnings amount. If the children own investment funds, switch them into growth funds, Series EE or I bonds. The bonds can be cashed once they are out of school and growth funds typically pay fewer dividends but appreciate in value. Again, these can be sold when the child is no longer your dependent.

 
This information is provided in an effort to help you gather and organize the information necessary to file your individual or small business income tax return. While these financial tools are not a substitute for financial advice from a qualified professional, they can be used as a starting point in your decision making process.