In our brave new world of Medicare taxes on unearned income, higher marginal rates for incomes over $250,000;  State taxes in California topping off at 12%, what is a businessperson to do who owns a profitable business and who is putting profits back into the business?  There are several options.  (1) A Corporation while doubly taxed permits corporations to retain earnings at a low tax cost currently, however to take the profits out increase tax costs dramatically.  (2)  Another possibility is to reduce one’s ownership interest by some percentage so that a portion of the profits go to one’s children who’s earnings as less than $250,000.  This could reduce taxes significantly if the entity is an LLC or S Corporation.  With low gift tax penalties, one could gift a significant ownership percentage to one’s children now and allow the children to have a portion of the growth.  One could also create trusts to hold the ownership interests for the children under for example 2503(c).   This would give the children the fruit of the tree without giving them the tree and the parent would continue to run the company.   (3) Purchasing key man life insurance to be owned by your children or by a trust for your spouse’s benefit.  These are but a few of the options available to make income lower from your business.  We’d be glad to talk to you about these and other options in the future.