Article Date:
February 2014


Word Count:
1502

 

 

Obamacare Revives S Corporation Income-Shifting Strategy


Suppose you want to give your parents $20,000 over the course of the year. You and your parents have two choices for the amount you will allow the government to collect in taxes:

 

1.

You can pay $9,851 in taxes.

2.

Your parents can pay $3,530 in taxes.

 

Both are perfectly acceptable choices. What’s the difference? The first is the tax you have to pay before you can make the cash gift to your parents.

 

The second is the tax your parents pay on the income you distribute to them through your S corporation.

 

When you give your parents stock in your S corporation instead of cash, you shift the income to their lower tax bracket. This means your parents end up with the same amount of money, $20,000 in the example that follows, but the government collects a lot less tax.

 

How You Save

 

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