Income Shifting

AAA

DEFINITION of 'Income Shifting'

A strategy of moving a person's income from a high income bracket or tax rate to a lower one. The most common form of income shifting occurs when an individual shifts a portion of their taxable income to their children, in order to take advantage of the lower tax rate at which their children are being taxed.

INVESTOPEDIA EXPLAINS 'Income Shifting'

The easiest method of shifting income to a child is typically to transfer funds or investment assets to a savings account or investment account under your child's name. The income from this account will fall into a lower tax bracket, as the child in most cases will not be making an income that would be applicable to higher taxation. One issue to be aware of, for parents looking to defer income to a child, is the "kiddie tax."

RELATED TERMS
  1. Kiddie Tax

    A special tax law created in 1986 imposed on individuals under ...
  2. Custom Adjustable Rate Debt Structure ...

    A type of tax shelter product used by high net worth individuals ...
  3. Tax Fairness

    A tax platform based on an ideal that aims to create a system ...
  4. Form 1078

    An official document issued by the Internal Revenue Service (IRS) ...
  5. Attribution Rules

    A set of rules created by Canada Revenue Agency (CRA) that prevents ...
  6. Income Spreading

    A tax reduction strategy that is typically used by people with ...
RELATED FAQS
  1. How is compound interest taxed?

    Compound interest is money that is earned and added to a principal balance and then earns additional interest. Adding interest ... Read Full Answer >>
  2. What is an adjusted cost basis and how is it calculated?

    The cost basis of an investment or asset is an important consideration in tax planning for individual investors, business ... Read Full Answer >>
  3. What are some ways to minimize tax liability?

    Minimizing tax liability is one of the most important financial planning aspects for business owners and individuals each ... Read Full Answer >>
  4. Can the government tax your capital gains from other countries?

    Income earned by U.S. citizens is subject to taxation by the IRS regardless of where it was generated. The government of ... Read Full Answer >>
  5. Can you realize capital gains on intangible property?

    Capital gains may be realized on some forms of intangible property. Intangible assets range from patents and licenses to ... Read Full Answer >>
  6. How does an entrepreneur pay taxes?

    In the United States, tax policy neither officially defines nor makes special rules for entrepreneurs. Certain types of entrepreneurial ... Read Full Answer >>
Related Articles
  1. Retirement

    Tax Tips For The Individual Investor

    We give you seven guidelines to help you keep more of your money in your pocket.
  2. Taxes

    A "Kiddie Tax" Overview For Parents

    Understanding how children are taxed is very important when it comes to saving for their college education.
  3. Taxes

    How Your Tax Rate Is Determined

    Feel like the government always has its hand in your pocket? Learn the theory behind how it decides how much to take.
  4. Taxes

    3 Common Tax Questions Answered

    We clarify some rules that often puzzle taxpayers.
  5. Professionals

    Top Tips for Retirement Account Withdrawals

    Top things you need to know when it comes to managing the complex task of retirement account withdrawals.
  6. Taxes

    Tips on Charitable Contributions: Limits and Taxes

    An overview of the limits and tax deductions of charitable donations.
  7. Taxes

    What is Withholding Tax?

    Withholding tax is the income tax federal and state governments require employers to withhold from employee paychecks.
  8. Retirement

    Retirement: The Journey Of 1000 Miles

    Substantial time should be set aside to fully outline one's vision for retirement and the specific steps that must be taken to realize it.
  9. Taxes

    OK, So I'll Be Smarter Next Tax Time

    5 tax resolutions to start on right now for a smoother tax return next April 15.
  10. Taxes

    What To Do If You Lost Your W-2

    There's no need to panic if you don't have your Form W-2 to file taxes, there are easy ways to gain access to the missing form or file without it.

You May Also Like

Hot Definitions
  1. Venture-Capital-Backed IPO

    The selling to the public of shares in a company that has previously been funded primarily by private investors. The alternative ...
  2. Merger Arbitrage

    A hedge fund strategy in which the stocks of two merging companies are simultaneously bought and sold to create a riskless ...
  3. Market Failure

    An economic term that encompasses a situation where, in any given market, the quantity of a product demanded by consumers ...
  4. Unsystematic Risk

    Company or industry specific risk that is inherent in each investment. The amount of unsystematic risk can be reduced through ...
  5. Security Market Line - SML

    A line that graphs the systematic, or market, risk versus return of the whole market at a certain time and shows all risky ...
  6. Tangible Net Worth

    A measure of the physical worth of a company, which does not include any value derived from intangible assets such as copyrights, ...
Trading Center