Income Spreading

Working a job where your income is really high one month and really low the next? Maybe you’re a movie star, basketball player, investor, or freelancer.

You’ve got the right idea: income spreading.

Income spreading is a way to reduce your taxes by spreading out your income over time, making your income look less volatile than it actually is. Income spreading can reduce your taxes by putting you in a lower tax bracket, or just by reducing the marginal tax rate over the long run.

Income spreading isn’t one set strategy...there are lots of different ways to do it. To be clear, income spreading is different than income averaging, which is a tax privilege for people like farmers in the U.S. Rather, it could involve selling a capital asset, then collecting regular payments on the asset over time.