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    Tax savings by transferring bond portfolio to son

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    Mr. and Mrs. WG's AGI averages $425,000, and they are in the 35 percent tax bracket. They support their 22-year-old son who is a full-time college student. Mr. and Mrs. WG are considering giving him a bond portfolio that generates $20,000 annual interest income. He could support himself with this income stream (he would be financially independent) and would file his own tax return. Compute the annual tax savings to the family resulting from this plan.

    Required: Prepare a letter to Mr. and Mrs. WG in which you compute and explain the annual tax savings that would result from the described plan.

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    Solution Preview

    Mr and Mrs WG

    At your request I have analyzed the tax effects of the transaction you are proposing wherein you would gift a bond portfolio to your son. You stated that the income generated from the bonds amounts to $20,000 per year and I assume they are all fully taxable bonds.

    The purpose of this letter is to assess the tax savings which would be generated by moving income from your ...

    Solution Summary

    The 290 word letter to Mr and Mrs WG explains the concepts and calculates the potential tax savings of the transfer of assets to the son.