Gifting stock in your family S corporation can be used to shift income to your children and reduce your estate. The stock can be gifted outright to your child or can be held in a custodial account (UGMA/UTMA) or in a trust (Qualified Subchapter S Trust or Electing Small Business Trust).
The parents shifted $5,000 of income to their child by gifting stock in their S corporation to the 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 gifting stock in your S corporation to shift income to your children.