Ownership Shifts: Moving Equity to Spouses, Trusts & Family Entities

A contractor earning $500K in the 37% bracket wants to bring his wife into ownership. If she's in the 24% bracket, shifting $100K in income saves roughly $13,000/year. Multiply by 10 years — that's $130,000.

But the IRS knows this play. The assignment of income doctrine says you can't simply redirect income you've earned to a family member in a lower bracket. The shift must have substance.

What Works

Legitimate ownership with real roles: Your spouse manages office operations, HR, bookkeeping — real work that justifies ownership and compensation. The K-1 reflects economic reality.

Family Limited Partnerships (FLPs): Transfer business interests to a family LP at discounted valuations. Children or trusts are limited partners receiving income. Requires proper valuation, a legitimate business purpose, and actual LP operations.

Trusts: Irrevocable trusts can own business interests, shifting income to beneficiaries in lower brackets. Grantor trust rules are complex — the trust must be properly structured to achieve the desired tax result.

What Gets Flagged

Paper-only transfers where nothing changes operationally. Giving a 49% interest to a spouse who has no role. Creating entities with no business purpose beyond tax reduction. The IRS applies economic substance doctrine and has decades of case law on family ownership arrangements.

This pairs with family payroll, estate planning, and the full tax strategy guide.