Income Shifting Strategies for Small Business Owners
Upper tax bracket, family business owners may shift income from business earnings distributions to low tax bracket relatives (children, parents who you are supporting) by hiring these relatives to work for the business and paying them salaries. The salaries are deductible as business expenses if reasonable in amount and for work performed.3
Loans at no or below-market interest, sale-leasebacks or gift-leasebacks, can also be useful, as can life insurance and annuity policies. These various vehicles are subject to the risk of imputed interest or gift reclassification.