DIVIDE
Splitting income among family members and choosing the right business structure can dramatically reduce your overall tax burden by leveraging lower tax brackets.
Entity Structure Comparison
Choosing the right business entity can save thousands in taxes annually.
Family Income Splitting
Leverage family members and entities to distribute income across lower tax brackets.
Employ Family Members
Hire your spouse or children for legitimate work in the business. Wages are deductible and taxed at their lower rate.
Benefits
- Children under 18: exempt from FICA if sole proprietorship
- Spouse employment enables access to retirement plans
- Shifts income to lower tax brackets
Cautions
- Work must be legitimate and documented
- Pay must be reasonable for services performed
- Keep proper employment records
Family Limited Partnership
Transfer business interests to family members through a partnership structure, shifting income while maintaining control.
Benefits
- Income shifted to lower-bracket family members
- Estate planning benefits
- Asset protection advantages
Cautions
- Complex setup and ongoing administration
- Must have legitimate business purpose
- IRS scrutiny on valuation discounts
Trust-Based Strategies
Use trusts to distribute business income to beneficiaries in lower tax brackets.
Benefits
- Income splitting across multiple beneficiaries
- Estate tax reduction
- Asset protection for beneficiaries
Cautions
- Trust tax rates compress quickly
- Complex administration requirements
- Professional setup required
Income Distribution Calculator
Compare how different entity structures and income splits affect your total tax bill.
The information on this page is for educational and informational purposes only and does not constitute tax, legal, or financial advice. Tax laws are complex, subject to change, and vary by jurisdiction. Strategies discussed may not be suitable for every taxpayer. Consult a qualified tax professional for advice specific to your situation.