A Limited Liability Company (LLC) can provide you with great flexibility in allocating interests in profits and capital and therefore, it can be used to shift income to your children and grandchildren. Generally, there are no restrictions on the types of assets that can be used to fund a Limited Liability Company (LLC).
Specific Details
The parents shifted $5,000 of income to their child by gifting an interest in their Limited Liability Company. Since the parents income was taxed at the 30% tax bracket, the income reduction may decrease their income taxes by $1,500 ($5,000 x 30%). 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 $1,500.
Potential Savings
If you are in a combined (federal, self-employment, and state) tax bracket of 30%, you could reduce your taxes up to $300 for every $1,000 of income reduction by using a Limited Liability Company to shift income to your children.