Assignment of income allows you to assign part of your income directly to another person. While there are several valid reasons to assign your income to someone else, many taxpayers mistakenly believe that it can help lower their taxable income. While assignment of income allows you to divert income, you cannot divert taxes.
In this article, we’ll provide some examples of failed attempts at avoiding income taxes through the assignment of income and the valid reasons someone might want to assign income to someone else.
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The assignment of income doctrine states that the taxpayer who earns the income must pay the tax on that income, even if he gave the right to collect the income to another person.
The doctrine is quite clear: taxpayers must pay their own taxes. However, that doesn’t stop many people from thinking they can avoid paying taxes or minimize their taxable income through the assignment of income.
Here are a few scenarios we commonly see.
The assignment of income doctrine does not stop you from diverting part of your income to someone else. In fact, that’s the whole point! Maybe you’re helping to support an elderly family member, or you consistently donate to the same charity every month or year. Whatever the case, you can assign the desired amount of your income to go to another person or organization.
While there are no tax benefits involved in assigning income versus making traditional payments or donations, it can be a more convenient option if you’re making regular payments throughout the year.
If you have any questions about how to go about assigning part of your income to a family member in need or a separate business entity, please contact S.H. Block Tax Services today. We can answer all of your questions and address all of your concerns regarding the assignment of income and provide suggestions on valid and legal ways to save on your taxes.
Please call us today at (410) 872-8376 or complete this brief contact form to get started on the path toward tax compliance and financial freedom.
The content provided here is for informational purposes only and should not be construed as legal advice on any subject.
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