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. Income Spreading

    A tax reduction strategy that is typically used by people with ...
  2. Form 1078

    An official document issued by the Internal Revenue Service (IRS) ...
  3. Custom Adjustable Rate Debt Structure ...

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

    A tax platform based on an ideal that aims to create a system ...
  5. Kiddie Tax

    A special tax law created in 1986 imposed on individuals under ...
  6. Tax Bracket

    The rate at which an individual is taxed. Tax brackets are set ...
Related Articles
  1. Tax Tips For The Individual Investor
    Retirement

    Tax Tips For The Individual Investor

  2. A
    Taxes

    A "Kiddie Tax" Overview For Parents

  3. How Your Tax Rate Is Determined
    Taxes

    How Your Tax Rate Is Determined

  4. 3 Common Tax Questions Answered
    Taxes

    3 Common Tax Questions Answered

comments powered by Disqus
Hot Definitions
  1. Days Sales Of Inventory - DSI

    A financial measure of a company's performance that gives investors an idea of how long it takes a company to turn its inventory ...
  2. Accounts Payable - AP

    An accounting entry that represents an entity's obligation to pay off a short-term debt to its creditors. The accounts payable ...
  3. Ratio Analysis

    Quantitative analysis of information contained in a company’s financial statements. Ratio analysis is based on line items ...
  4. Days Payable Outstanding - DPO

    A company's average payable period. Calculated as: ending accounts payable / (cost of sales/number of days).
  5. Net Sales

    The amount of sales generated by a company after the deduction of returns, allowances for damaged or missing goods and any ...
  6. Over The Counter

    A security traded in some context other than on a formal exchange such as the NYSE, TSX, AMEX, etc. The phrase "over-the-counter" ...
Trading Center