Our 7 Need to Know Tax Strategies for End of Year Tax Planning

 

 

Cathy A. Robinson, CPA
Senior Manager
robinson@hwco.com
 

 

Last week, we shared some tax planning ideas for small businesses.  We recognize that it's just as important for individuals to have a tax strategy in place as well. This week, we share some ideas for individuals, though not all items are ideas individuals will be able to implement. 

1.       Review your filing status to ensure the change will not impact income. 

2.        Postpone income until 2016 and accelerate deductions into 2015, you believe you will be in a lower bracket next year.

a.        Accelerating deductions could be accomplished by bunching deductions together.  For example, you could pay three real estate taxes in one year versus two. 

b.      You could use your credit card to pay deductible expenses before the end of the year.

c.       You may consider if it is advantageous to defer your bonus to 2016.

 

3.        Consider realizing losses on stock or consider selling appreciated assets to offset pre-existing losses.  Of course, for either of these transactions you will need to consult with your investment advisor.

 

4.       Review your required minimum distributions from your IRA or 401(K).   You could delay first required distribution, but it might mean that you double up your distribution in the next year and push you into a higher tax bracket.

 

5.       Pay your fourth quarter state or local estimated payment before the end of the year.

 

6.       If you paid a balance with your state and/or local income tax returns in 2014, remember to include the amounts paid with your 2015 returns.

 

7.       If applicable, remember to consider the effect of any of your year-tax planning on AMT (alternative minimum tax).  A deduction may not save taxes if you are subject to AMT.

 

As always, contact your tax professional in order to begin the planning process so you do not have any surprises in April.

5 Reasons Why Hiring Your Child Is A Good Idea

Cathy A. Robinson, CPA
Senior Manager

 

 

 

School is out for the summer. College and high school students alike will be in search of jobs. So how does it work if you own your own business and have a child looking for a summer job? Is it wise to hire them on? If you hire them, how does that work for deductions? There are five tips that can help to answer these questions.

 

1.)    Hiring your child can be an effective income-shifting strategy for a taxpayer that owns his or her own business.  In fact, there may be favorable payroll taxes that apply to you and your business. Many business owners who are parents do not understand is that should you hire your child, if they are under the age of 18, you are not required to withhold any payroll taxes.  This stipulation, however, only applies to Limited Liability Companies (LLC) and Sole Proprietorships.

 

 It should also be noted that if you own an S-corporation or a C- corporation, you also do not receive the benefit of avoiding payroll taxes when employing your child.  Instead, you will have to pay your child out of a corporation and have to withhold payroll taxes.

 

2.)    If preparing your child for the future is also of concern, hiring your child can also help to ease your mind.   With earned income they can contribute to a ROTH IRA. This is a great opportunity that would allow the earned income to be put into an account and later be pulled out for college.  You may be able to pull the money for college expenses penalty and tax free. 

 

3.)    You may have also heard of something called Kiddie Tax. For many parents who are business owners, this tax may be something you find yourself concerned with. However, earned income is not actually subject to Kiddie Tax, regardless of age.  This tax, in fact, only applies to unearned money or the child’s investment income.

 

4.)    So what does this mean for you the parent?  The first $6,300 of income made isn’t taxed by the federal government. By hiring your child, you keep that money in the family. Other deductions include claiming your child on your return as a dependent and taking that exemption, as well as the Child Tax Credit.

 

5.)    The most important thing to remember is that you need to keep your business legitimate even when hiring your child. Your child should only be paid for the services that they render to your business or property. Payments must also be made to your child and should be in accordance with the services they are providing.  It should go without saying that by hiring your child they should be performing a necessary task to the business so that they may be legitimately involved with it. Hiring them to do chores around the house will not qualify you for deductions, and could also involve setting yourself up to be audited.

 

In conclusion, hiring your child could be a good idea for a parent who is a business owner. It can help you pay for college later on down the road, give you a tax break and also teach your children the importance of having a work ethic. 

 

Consulting your accountant before making any financial move is always important, as they can help to guide you as you take the steps towards a better financial plan for you and your child. Be sure that you bring up the above points as your business takes the steps towards hiring your child.

 

 

 

This update is published periodically by HW&Co. as an information service to our clients, business associates and friends. It is general information and professional advice should be obtained before acting on any comments contained in this document.