A sole proprietor in the 39.6% tax bracket pays her 16-year-old son a reasonable salary of $10,000 for services performed for the proprietorship. Compute the family's tax savings if the son has no other income, is claimed as a dependent on his parents' return, and takes a $6,300 standard deduction.

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The son's taxable income is $3,700 ($10,000 salary - $6,300 standard deduction). The tax on $3,700 at the 10% rate is $370. The tax savings for the family is the difference between the tax the sole proprietor would have paid on $10,000 at 39.6% ($3,960) and the tax the son pays ($370), which is $3,590.

A Sole Proprietor in the 39