Working Parents: Are you affected by the Nanny Tax?



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

If you are a working parent you understand just how hard it can be to find someone who can help take care of your children. While many working parents may place their kids in a daycare facility, others hire people to come into their homes to take care of their children. What some people may not understand is that hiring a nanny means you may have to pay the Nanny Tax, and you have a household employee.

 

 If the annual wages are over $1,900, you are required by the IRS to withhold and pay social security and Medicare taxes.   However, there are some exceptions to those whose wages are subjected to these taxes.  You should check with your tax advisor on the exceptions.

 

Another tax that will be paid is Federal Unemployment Tax (FUTA).  This tax is .06 percent on cash wages and only the first $7,000 in wages is subject to this tax.  FUTA is not a tax that you withhold from the nanny’s pay.  It is a tax that is paid by you.

 

Depending on the state where you live, you will also need to look into filing and paying state unemployment tax and workers’ compensation.  You will need to complete applications for both of these items.

 

It is important to also note that paying the nanny tax is required if you are the employer. This means even if you used an agency to find your nanny, you are still required to pay the tax. If you are the employer,  you will also need to ensure that your nanny or in-house sitter fills out an I-9 form, a W-4 and a state income tax withholding form (if you live in a state with income taxes.)

 

The nanny tax is reported on Schedule H of your Form 1040.

Plan Now, Save Later: What To Do After Your Child Graduates

 

Cathy A. Robinson, CPA
Senior Manager

 

 

 

Do you have a child that recently graduated from college? Maybe you have a child who will be graduating within the next year.  Did you know that your taxes could be impacted?

 

Once a child is no longer a full-time student, you may not be able to claim them as a dependent. If you’re a single parent that claims head of household filing status, this is especially important for you.   Should your child find a job within six months of graduating you are no longer able to claim them and use the head of household filing status as they will most likely have earned more than $4,000. Your tax filing status will go from head of household to single and the credits you normally could qualify for will no longer apply. In order to make sure you don’t end up owing at the end of the year, be sure to talk to your accountant about making the necessary adjustments to your withholding and estimated tax payments should this situation apply to you.  

 

This doesn’t necessarily mean that you can’t continue to claim them after they graduate college. This is when the support test comes into effect. If the child cannot provide half of his or her own support then you can claim them. They’re considered a relative dependent. If the child’s gross income for the year is only $4,000, you can claim them. 

How Will Same-Sex Marriage Affect Taxes?

The Supreme Court ruling in favor of same-sex marriage is a hot topic at the forefront of everyone’s minds.

 

How will the recent Supreme Court ruling in favor of same-sex marriage affect taxes? Does this ruling affect you?

 



Cathy A. Robinson, CPA
Senior Manager

Since the June 26^th ruling, individuals will see a change to tax filing requirements at the state level.  

 

Before the decision was made, same-sex couples were able to file joint returns at the federal level.  However, there was a catch to this method: most states did not recognize same-sex couples, and they were required to file individually or as head of household.

 

With the new ruling, there will be a streamlined process using the same filing status at the state returns. States will also begin to issue tax guidance on how same-sex couples can file their returns. In fact, Sen. Ron Wyden, a Democrat from Oregon and a member of the Senate Finance Committee, plans to introduce legislation this week that will provide gender neutrality for spouses. This bill will be called the Marriage Equality for All Taxpayers Act and would eliminate gender-specific references in the current tax code.

 

Tax guidelines are also expected to change to include treating all same-sex couples equally in regards to estate tax and other inheritance issues as married couples.

 

Under federal tax regulations, couples who live in states that currently do not recognize same-sex marriages will be now be able to:

·         Make unlimited gifts to one another without gift tax implications

·         Leave property to one another without survivor having to pay estate taxes

·         Leave IRA to surviving spouse as a "rollover" IRA

·         Be able to qualify as surviving spouse with Social Security benefits

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.

Succession Planning...It Starts Now.

Cathy A. Robinson, CPA
Senior Manager

Succession planning isn’t always the first thought on your mind as a business owner or professional.

 

You have put in the time, the hard work, the blood, sweat and tears that have made your company or your profession what it is today. How could you possibly just hand over the reins to someone else?

 

The truth of the matter is simple … you can’t predict the unpredictable.  

 

There are several ways to leave a company:

 

Death

Retirement

Disability

Expected departure

Involuntary departure

 

Eventually your partnership with your company will end, and it is important to make sure you are on a path that is suitable for you, your company, and your clients. What would happen to your company or your partner should you unexpectedly pass away? What would happen to your practice if your partner wanted to leave to be closer to his or her children or grandchildren?  Or, what if your children didn’t want to take over the family business?  Do you have the necessary steps in place to help with any of these situations should they arise?

 

Addressing these questions sooner rather than later will help you deal with the unavoidable later on down the road.  In fact, there are two tips mentioned by lawyer Eliot M. Wagonheim in a blog on Huffington Posts that are especially important to keep in mind.

 

1)      Consider a valuation. Use an expert experienced with doing valuations in your industry for an appraisal of your company.

2)      Work out a purchase agreement with your partner utilizing your accounting professional to ensure everyone is receiving a fair share of the company.  Having a plan in place will help to avoid any possibilities of a sticky situation when someone leaves, expectedly or unexpectedly.

 

Talking with your family members is also important if you own your own business. If you plan on passing the business down, make sure they have a serious interest in taking it over. If they do not, you need to start planning for succession or the possibilities of selling off the business.

 

If you are in the professional service industry, it is also important to sit down and have a conversation with your clients.  Planning according to what is best for the client and the long-term relationship with your company is crucial. The best and smartest succession plans begin with a thoughtful plan that incorporates the wants and needs of your existing and developing clients.

 

Spending just a few hours to put a plan into place now can keep you or your partner from putting fires out later, while helping to manage emergency situations later should they arise.  The earlier you begin planning for the next stage, the better the chances of your company’s continued success will be.



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.

Mid-Year Tax Moves You Should Consider

Cathy Robinson, CPA
Senior Manager



Recently, AccountingToday & Kiplinger published an article touching on 8 mid-year tax moves that could help people save more money. So what are these recommendations?

1.) Fix Your Withholding

If receive an average refund somewhere around $2,700 this is applicable to you. By adjusting your withholding now, you can boost your take home pay by somewhere around $225 a month for the rest of the year. This also means that since you'll still be able to receive a nice size refund in the spring.

  

 2.) Midyear Adjustment for Obamacare Healthcare Premium

If you've experienced a change in the size of your family or perhaps received a raise at work it's important to know that the size of your subsidy for your healthcare premium could be affected.  Should the change affect your subsidy so that it should be bigger, you have the option to pay lower premiums for the rest of the year. However, if the changes in your life means that your subsidy should fall experts recommend paying higher premiums for the rest of the year so as to avoid being surprised next spring with a bill when you file your form 1040.

3.) Reevaluate Your 401 (k) Contributions
Do you know what you're investing into your 401 (k)? Now is the time to evaluate where your money is going and if you can contribute more.  It's good rule of thumb to keep in mind that roughly every $100 you place into a traditional 401 (k) your pay only is cut by $75 if you're on the 25% federal tax bracket or less.

4.) Flexible Spending Check
 If you divert money into a flexible spending or reimbursement plan it's time to check and see how much money you have diverted into it. Mid-year tracking of reimbursement spending can help you not lose your money later on down the road.

5.) Probe Your Taxable Portfolio
 Keeping your investments in mind now can also be helpful. Kiplinger writes, "If you decide it’s time to take some money off the table by realizing profits now, consider whether this is a good time to harvest losses. Never make an investment move solely for tax purposes. But the tax-saving power of dumping a poor performer might be the extra push you need to seek out a better investment."

6.) For the Newly Minted Septuagenarian
For those who turned 70 earlier this year and will be 70 1/2 by the end of the year it means the start of required minimum distributions (RMDs) from IRAs and other retirement plans. Working with your accounting professional to map out your strategy now can help prevent the unexpected.

7.) Let Uncle Sam Help With Your Debt
Check your credit card debt. Would it make sense for you to borrow home equity to pay off your credit cards?  Kiplinger lends this advice, " Imagine this: $10,000 of credit card debt at 15% costs you $1,500 a year in carrying charges. The same $10,000 of debt on a 4.5% home-equity line of credit costs $450. And, if you’re in the 25% tax bracket, Uncle Sam effectively picks up $112.50.

8.) Take a Good Look at Yourself
Make sure you have an understand of the options available to you. Did you know there are tax breaks for new college grads, new parents, the recently divorced, and the newly widowed?  You don't want to overlook something that could save you money.


The recurring theme with analyzing your financial status mid-year is this, by making sure you're prepared now you could save yourself money in the long run.

It's important to also consult your accounting professional before making any financial moves so as to make sure you have the best strategy working for you and your money.


Have questions? Find us online at www.hwco.com. And to read Kiplingers full article click here.
 

IRS Issues Reminder for Tax-Exempts About May Deadline

Accounting Today announced on May 7^th that the IRS had sent out a reminder on May 6^th to tax exempt organizations. This reminder informs tax-exempt organizations that filing 990-series information returns must be done by May 15^th.  By sending out the reminder they also had hoped to also caution organizations about unneeded personal information and against using Social Security numbers. Instead they’re asking organizations to e-file.

 

The IRS is urging organizations to e-file to help with the reduction of inadvertently including Social Security Numbers and other unneeded personal information.

 

If tax-exempt organizations fail to file annual reports for three consecutive years their federal exemptions are then revoked on the due date of the third filing.

 

Have questions? Contact Nonprofit Director Brandon Miller at (216) 831-1200.

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.