Income Shifting to Lower Tax Brackets

A

The correct answer is A. Income shifting.

Income shifting is a tax reduction technique that involves transferring a portion of a taxpayer's income to their family members who are in a lower tax bracket, thus reducing the overall tax liability of the family unit.

This technique is legal and permissible under the Internal Revenue Service (IRS) rules, provided that it is not done solely for the purpose of tax avoidance. The IRS may investigate the transaction to ensure that it is a bona fide transfer and that the transfer is not a sham transaction created solely to reduce taxes.

The technique of income shifting can be accomplished in a variety of ways, such as through gifts, trusts, or by hiring family members in the taxpayer's business. The most common way to shift income is through gifts, where the taxpayer can gift a certain amount of money or assets to a family member and thus reduce their taxable income.

It is important to note that income shifting may not be a viable option for everyone, and individuals should consult with a qualified tax professional to determine whether this strategy is appropriate for their specific situation. Additionally, income shifting may have other implications, such as affecting the recipient's eligibility for certain government benefits or impacting their own tax liability.