Tax-Saving Strategy: Loans Over Gifts for High Earners

Imagine a couple, Rahul and Priyanka, who need money for Priyanka's business.

Rahul could give (gift) Priyanka money, but any profit from her business would then be added to Rahul's income for tax.

This means a higher tax bill for him.

Instead, if Rahul lends Priyanka the money with interest, her business profits are taxed separately.

This keeps their taxes lower overall because they each use lower tax brackets.

The important thing is that the loan has to be official with interest paid to work.