What is Income Shifting?

Income shifting can potentially be an effective strategy for lowering tax liability. After shifting, the gross income can be adjusted to a level that results in a far more forgiving tax rate than otherwise. The following are some of the most important things to keep in mind before making a decision to go through with an income shift.

Shifting Companies For Lower Company Taxes

Under the right circumstances, multinational companies can potentially benefit in a big way from strategically shifting income. Even if a company happens to be a bit on the smaller side, it may be able to use an income shift strategy between different states and countries.

Companies that are on the larger side have an even greater ability to use their physical stationing in lower-taxed areas to their advantage. Shifting income to places where tax laws are slightly looser can be a highly effective way for businesses to spare themselves the usual drag on their earnings that would be experienced in their country of origin.

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Naturally, each company will need to abide by its own unique tax regulations and laws in order to know how they can be legally worked around. Different rates and regulations will call for different income shift strategies in order to derive the most benefits.

Gifting Income To Children

Income can be shifted to children, but there are a number of regulations that need to be taken into consideration beforehand. Shifting income to minors can be done as an untaxed “gift” so long as the full amount is less than $850 in total. If the gift is between $850 and $1000, the tax rate is 15 percent. Shifting any amount of income higher than $1000 will be taxed at the same rate that would have to be paid by the parent in their income bracket.

Limitations On Income Shift Amount

All income shifts must abide by the limits on gift tax amounts established by the IRS. As of 2016, the IRS limit for any gifting that that can be done before a gift tax is placed upon the asset is $14,000. Up to $14,000 in untaxed assets can be gifted to as many individuals as the gift-giver desires, which could be advantageous for those who happen to have a fairly large pool of immediate family members.

Shifting Income To Family Members

Should you decide to shift income to another family member, then it can be done through a mutually owned asset. An asset that can be mutually owned with family members could be real estate property, a mutual account, or any other asset with appreciating value.

Once the mutually owned asset with a family member in a lower tax bracket has been established, the income shifter can transfer ownership of that asset to the family member in question. Once ownership of the asset has been shifted over, it will be taxed at the lower tax bracket.


Income shifting is one of the easiest ways to get relief from asset taxation. Small business owners, large companies, parents, and people with willing families or social networks can use an income shift to good effect, so long as they remain wary of the limitations and regulations.