Tax savings through income splitting still available after Tax Reform Act

Article Abstract:

Income shifting within a family to reduce the tax liability of a high-earning individual is explained in light of the Tax Reform Act of 1986. Income shifting can be accomplished by: employing children in a family business, provided they are old enough; transferring property or security ownership to lower-earning family members, when the property or security is a source of income; reducing estate taxes by transferring property ownership to joint tenancy with an older family member who is supported by the original owner and agrees to right of survivorship such that the property passes upon death to the original owner's children; and transferring fully depreciated business assets to nongrantor trust and leasing the assets from the trust for business use. The two types of income shifting no longer allowed under the Tax Reform Act are: Clifford trusts, and spousal remainder trusts.

Analysis, Tax incidence, Income shifting

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Interest-free loans and other planning tools that can still be used to shift income

Article Abstract:

Provisions of the Tax Reform Act of 1986 have made income shifting within families more difficult, particularly in revisions to grantor trust rules, gift loan provisions, income tax rate reductions, and the adoption of the 'kiddie' tax. Other income shifting mechanisms such as Clifford trusts and spousal remainder trust remain an appealing alternative to interest-free loans. Outright gifts and gift-borrowbacks may also be used to generate tax savings, but entail both advantages and disadvantages. Non-tax factors should also be considered, and tax reduction per se should not be the dominant motive in income shifting.

Interest-free loans, Interest free loans

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Income taxation of trusts and estates is increasingly complex after TAMRA

Article Abstract:

Issues concerning treatment of income from trusts and estates following changes made under the Tax Reform Act of 1986 and the Technical and Miscellaneous Revenue Act of 1988 are discussed. These issues include the calendar year requirement, estimated tax payments, interest expense limitations, limitations on grantor trusts, and the increased impact of the alternative minimum tax. Income tax benefits of trusts have been significantly reduced, but new methods for using trusts to reduce tax liability and transfer assets to other family members are evolving.

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