Congress has changed the rules on taxing children for income over $1,700 at the parent’s rate. The age threshold over which the child pays tax at his or her own rate was raised to 18. More recently, Congress further increased this threshold beginning in 2008 to age 19 or, if the child is not supplying more than half of his or her support, age 24. Therefore, if you have custodial accounts, you may want to sell now to incur gains in 2007 instead of 2008 or, if the child will not need the money for some time, rolling the funds into a 529 plan.
See Our section on Tax and Investment Planning for Your Children.