The creation of joint tenancy is a simple and effective way to shift income and assets to your child or grandchild. When a joint tenancy is created, each of the joint tenants has an undivided equal interest in the jointly held property. Therefore, each joint tenant is entitled to an equal share of the income from the property and will be taxed on his share.
The parents shifted $5,000 of income to their child by creating joint tenancy to shift income and assets to their child. 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.
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 creating joint tenancy to shift income and assets to your child.