Taxpayers often express their unwillingness while they need to pay a huge amount of tax. After searching for ways to save money for a long time, they finally found a way to get rid of the extra burden of tax quickly. Income shifting is a concept that helps a taxpayer curtail down some extra pounds from their earnings.
Perhaps you think that it is an illegal practice. It is not at all an illegal one. If you can show officially that your income band does not come under the tax payment, then it no longer remains an illegal action. After the introduction of such a concept, income shifting has become a common practice.
Here we will discuss everything about this widespread practice and how you can enjoy the benefits of this specific concept.
What is income shifting?
The process of transferring a part of your earned money to another person who does not come under tax payment due to the non-eligibility is known as income shifting. Generally, people shift either business income or investment income to their children’s accounts so that they do not require to pay huge amounts of tax. This practise is very common among family members.
People who engage themselves in income shifting usually earn more than common people. According to a survey, people who reached the highest band of earnings need to save tax payment by following this method. These people failed to get tax benefits even after investing money through the IRS and several other tax benefits schemes, so they proceeded for income shift.
When you follow income shifting, you must transfer the extra amount of money to one of the family accounts. Make sure that person does not come under a high tax payment band. So, it can be your children’s account or your parent’s account. Both senior citizens and children need not pay a very high amount of tax as they are dependants.
The process of operating Income Shifting
Income shifting or splitting is basically the action of saving money through another person’s account. But here, one must remember that this savings concept does not apply to earning money. Perhaps you are thinking, what type of earned money are we talking about? Well, basically, income shifting is only legal when a person is applying it on income earned from either investment or business.
Moreover, one can’t transfer the amount he earned to another person’s account, which he has given as wages. On the other hand, the income shifting method can easily apply when you transfer the money earned from investment return. There is no boundary from govt.’s end as well.
While transferring investment income to other recipients’ accounts, almost every investor gets rid of the burden of extra payment. On the other hand, if one’s family member needs funds, they will also get them due to the concept of income shifting. However, if a person needs money, he can apply for cash loans in Ireland.
What are the various ways of Income Shifting?
Being one of the popular means of saving tax, different people have started different practices. Certainly, you may proceed with your own strategy. But prior to that, you must make sure that it has a strong legal background. Some of these popular means of income shifting are,
- Inspire your child to become a part of the business
If you are earning independently and have your own business, it is better to inspire your child to become a part. Being a boss, you can hire your own kids to work for the growth of the company. It will save you money and keep you away from paying extra tax. To keep the business income within the premises of the house, most of the company owners would like to apply this concept.
When you show the government that total earned money is not only earned by you but also another employee, then the tax will come down. You can save more than you think if your child is less than 18 years old. According to Ireland Government, they do not come under tax payment.
- Shifting of income-generating assets to another person
Apart from shifting funds from one account to another, a person can also transfer the ownership of assets to those who need not pay any tax. Generally, an investor holds lots of stocks, shares and bonds. You must remember that all those return-generating investments will increase the tax amount in such a condition.
While you want to save additional income, then it is better to transfer the ownership. This is because to get tax benefits. There is a bar and above which you need to pay tax. If you transfer the ownership, you need not pay extra money as all those extra returns will be deposited under the name of a new person.
- By delaying unnecessarily
If you do not feel secure transferring the ownership or linking other family members’ accounts for income shifting, try this one. You need not really do an income shift with this plan, but it will work as an income shift. By simply delaying in paying tax, you can easily save extra payment of tax. Many taxpayers used to transfer their payable tax from one financial year to another.
When you do not want to either pay a high volume of tax or transfer the ownership, then simple delay in tax payment, by delaying in paying tax, you can cover the maximum expense of tax through your rebates. As a result, you can save additional money and use the rebates.
Moreover, if a person is running a business, then it may seem to him impossible. But it is not entirely impossible because, if you can hold the invoice of the running month and send it late, you can also save on tax payment. Some taxpayers also do it for genuine reasons of financial crisis for which they need to borrow even cash loans in Dublin.
Therefore, these are some tactics of income shifting through which one can easily legally save more money. You may try any one of them to get the best benefit.
Income shifting is the process of saving money on tax which usually people who earn very high amounts exercise. There are ample ways of income shifting.