Profit From Your Children

Profit From Your Children

Profit from your children?  Making maximum use of your dependents can help slash your taxes significantly. “Dependents” generally mean your kids, but many of these gambits also work with low-income parents you might be assisting financially — even if they aren’t your dependents. Here are a few to consider.

Hire your children.

If you’re an unincorporated business owner, consider putting your kids on the payroll. This allows you a double-dip tax savings of both income and self-employment taxes.

Your kids won’t have to pay any Social Security/Medicare (FICA) taxes on their wages if they’re under 18, and they won’t be subject to Federal Unemployment (FUTA) taxes if they’re under 21.

With the 2006 standard deduction at $5,150, you can pay that amount to your child with no income tax consequences. That amount jumps to $9,150 if the child fully invests in a deductible IRA.

If you’re in the 25% tax bracket, you can save as much as $3,600 in income and self-employment taxes, and your child won’t have to pay the IRS a dime! Even if your business is incorporated — in which case the kids are subject to FICA and FUTA taxes — it’s still a substantial tax savings.

Give appreciated property.

Even with the new, lower 15% tax rate on long-term capital gains, giving appreciated property (such as stock) to that college-bound student or your low-income parents can save tax dollars. It’s likely that your child or parent will be able to sell the asset and pay the tax at a 5% or lower rate.

Since you gifted the property to them, you’ll have no income tax consequences whatsoever when they sell the property.

Don’t claim the child as a dependent.

Many taxpayers with college-age children are barred from taking the Hope Scholarship Credit and/or Lifetime Learning Credit because their income exceeds the allowable limits. The solution? Don’t claim that child as a dependent. If you forgo taking the dependent exemption, your child is allowed to claim the credit on his or her return.

It doesn’t matter if you’re still paying the education expenses, or even if the child is still a dependent. Keep in mind that this gambit works only when the child has taxable income — yet another reason to hire your child in your business.

One tax strategy, have grandparents fund the Coverdell IRA.

Is your income too high to fund a Coverdell education IRA for your child? It’s likely that your parents’ income is low enough to allow them to make the contribution — even if you gift them the money used to make it.

These are just a few of the many ways you can maximize your dependents and minimize your taxes. We’ve discussed other ways in previous articles; if you’re interested, go back and take a look.

We hope you found this article about “Profit From Your Children” helpful.  If you have questions or need expert tax or family office advice that’s refreshingly objective (we never sell investments), please contact us or visit our Family office page  or our website at www.GROCO.com.

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Alan Olsen, CPA

Alan Olsen, is the Host of the American Dreams Show and the Managing Partner of GROCO.com.  GROCO is a premier family office and tax advisory firm located in the San Francisco Bay area serving clients all over the world.

Alan L. Olsen, CPA, Wikipedia Bio

 

 

GROCO.com is a proud sponsor of The American Dreams Show.

 

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The American Dreams show was the brainchild of Alan Olsen, CPA, MBA. It was originally created to fill a specific need; often inexperienced entrepreneurs lacked basic information about raising capital and how to successfully start a business.

Alan sincerely wanted to respond to the many requests from aspiring entrepreneurs asking for the information and introductions they needed. But he had to find a way to help in which his venture capital clients and friends would not mind.

The American Dreams show became the solution, first as a radio show and now with YouTube videos as well. Always respectful of interview guest’s time, he’s able to give access to individuals information and inspiration previously inaccessible to the first-time entrepreneurs who need it most.

They can listen to venture capitalists and successful business people explain first-hand, how they got to where they are, how to start a company, how to overcome challenges, how they see the future evolving, opportunities, work-life balance and so much more..

American Dreams discusses many topics from some of the world’s most successful individuals about their secrets to life’s success. Topics from guest have included:

Creating purpose in life / Building a foundation for their life / Solving problems / Finding fulfillment through philanthropy and service / Becoming self-reliant / Enhancing effective leadership / Balancing family and work…

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MyPaths.com (Also sponsored by GROCO) provides free access to content and world-class entrepreneurs, influencers and thought leaders’ personal success stories. To help you find your path in life to true, sustainable success & happiness.  It’s mission statement:

In an increasingly complex and difficult world, we hope to help you find your personal path in life and build a strong foundation by learning how others found success and happiness. True and sustainable success and happiness are different for each one of us but possible, often despite significant challenges.

Our mission at MyPaths.com is to provide resources and firsthand accounts of how others found their paths in life, so you can do the same.

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