Samuel owns some land, which has an oil deposit underneath it. His annual royalties vary from $50,000 to $60,000. Because Samuel is in the highest marginal tax rate bracket, he would like to have some (or all) of the royalty income taxed to his son, Jack, thus lowering the overall tax on the royalty income. To do this
I.Samuel can gift part of the land to Jack.
II.Samuel can gift part of each year's royalties to Jack.

Question

Samuel owns some land, which has an oil deposit underneath it. His annual royalties vary from $50,000 to $60,000. Because Samuel is in the highest marginal tax rate bracket, he would like to have some (or all) of the royalty income taxed to his son, Jack, thus lowering the overall tax on the royalty income. To do this
I.Samuel can gift part of the land to Jack.
II.Samuel can gift part of each year's royalties to Jack.
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Quizplus · Accepted Answer

Option I is correct as gifting a portion of the land to Jack will transfer ownership of the oil deposit to Jack, hence allowing him to receive the royalties and be taxed on them instead of Samuel. Option II is incorrect since gifting part of each year's royalties would still result in the royalties being taxed at Samuel's higher tax rate.

Samuel Owns Some Land, Which Has an Oil Deposit Underneath