There are other income-shifting techniques that may be employed by the client to shift income to the child. The following techniques may be used to shift income to a child:
Specific Details
The parents shifted $5,000 of income to their child by gifting a business interest to a 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.
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 gifting a business interest to your child.