The intention of the Affordable Care Act was to increase the number of recipients of health insurance without increasing costs. While the accomplishments of the Act are often debated it appears the wealthy are seeing increased taxes on their investment income and dividends to offset the rising cost of insurance.
For many wealthy people this has made income shifting strategies very important, so that they can avoid increased tax bills.
Recently Investopedia offered some techniques to accomplish this goal in “Income-Shifting Strategies: How They Can Reduce Taxes.”
The methods include:
- Gift Tax Exclusion – By taking advantage of the annual gift tax exemption, wealthy people can effectively decrease their own income without facing a tax penalty for doing so.
- Family Limited Partnerships – Family partnerships can be created to move property into the partnership and eventually transfer the property to other family members. However, this is an estate planning technique that has recently been under increased scrutiny, so consult with an expert to see if this is a good idea for you.
- Hire Relatives – As long as you pay a reasonable wage, there is nothing that prevents you from hiring relatives as employees as a method of transferring money to them.
- Bequeath It – Of course, you can also use an estate plan to transfer assets to relatives who can receive it on a step-up basis for capital gains purposes.
An estate planning attorney should be consulted for ideas on how to reduce a growing income tax burden.
Reference: Investopedia (Nov. 13, 2015) “Income-Shifting Strategies: How They Can Reduce Taxes.”