56. Save $1,000s per year – Reduce taxes by shifting income to lower-taxed relatives
You can save on taxes by shifting income to lower-taxed relatives.
Assuming your spouse or children are subject to lower marginal rates of income tax, the new arrangement can result in significant tax savings. For example, under the old system, if you are a professional, subject to a high marginal rate of income tax, wanting to give your 18 year old, with no other source of income, like $20,000 for education, you would have to pay a dividend or bonus to yourself and then gift it to your child. With the amendments in place, your professional corporation can pay discretionary dividends directly to your child, allowing you to avoid the high personal income tax.
Even if you are not a professional, you could gift your children tax-free (up to a certain amount), while shifting taxable income from high to lower tax bracket.
Optimize for taxation: taxes from you and your relatives could be optimized by shifting incomes to lower tax brackets, like person with $100,000 taxable income transfers a piece of the income to person with $30,000 taxable income.
A high-income earner could gift (tax free) income (up to a certain amount) from one relative to another, like employed parents gift money to unemployed/studying children and lower their taxable income.
Discuss with your tax adviser ideas like: filing personal tax returns individually rather than jointly as husband/wife in order to shift taxable income, employ children to do a supposed job in order to reduce taxable income, gift money from high-income earner to low-income earner/student in order to reduce total taxes.