Consider gifting or selling depreciated business equipment to your child and leasing it back from the child at a reasonable rate. Depreciated equipment is necessary in the business, but is no longer providing a financial benefit. Since lease payments are a tax deduction, leasing the equipment back from your child will provide a way to shift income to the childs lower tax bracket. The transaction must have a business purpose, such as, asset protection. Lease income is also considered unearned and will be subject to the Kiddie Tax rules if the child is under 24.

Specific Details

Mom owns the office from which her business operates. Mom gifts depreciated office equipment to her daughter Sally and subsequently leases it back for $200/month (a reasonable rate determined by checking with a rental service). Since mom is in a combined 38% tax bracket (32% federal and 6% state), shifting $2,400 per year in lease income to Sally will generate a $912 tax savings per year.

Potential Savings

If you are in a combined (federal and state) tax bracket of 35% and your childs tax bracket is 0%, you could reduce your taxes up to $350 for every $1,000 of lease-back income you could shift to your child.