Having just enjoyed the 4th of July weekend, one thing is certain: Summer is here! I don’t know where all the time goes, but 2014 is just flying by for me and I imagine many of you are experiencing the same thing. So, in honor of summer, I thought I’d share some tax tips with a summer theme that might help out some of you in planning to reduce your tax bill next year.
Summer Day Camp/Day Care. If you have young children (or if you have young grandchildren, then share this advice with your children) and you have to pay someone to care for them so you can work or look for a job, you may be able to take a tax credit for child and dependent care expenses. It doesn’t matter whether it’s day care or Summer Day Camp, either expense is eligible. (Unfortunately, overnight camp expenses don’t count).
Yard Sale Taxes and Charitable Deductions. Doing a yard sale is a great way to raise some extra cash and de-clutter the house or garage. And the best part is that if you sell the items for less than you paid for them, then you generally won’t owe any tax on the earnings because your “cost of goods sold” exceeds the price you’re selling at. However, if you sell for a profit, or at the swap meet or farmer’s market, you will probably have to report profits & losses, collect General Excise Tax, and pay self-employment tax.
Summer Job for Kids or Grandkids: Earnings from Babysitting, Mowing Lawns, Car Washes, and Lemonade Stands, are generally considered self-employment income and if they exceed $400 are generally subject to self-employment taxes. However, see the next tip below for a better way to have your kids work during the summer.
Have a Business? Hire your Children. If you have a business and hire your children, you can pay them reasonable wages for the work they do and deduct their wages from your business income. The best part is they can earn up to $6,200 and pay NO income tax for the year by applying the standard deduction. And if your business is a Sole Proprietorship, you don’t have to pay Social Security or Medicare Taxes on your minor child’s wages. (If you have a business other than a Sole Propietorship such as a C-Corporation, S-Corporation, Partnership or Multi-Member LLC, make an appointment to see us and we can teach you the loophole we’ve discovered to make it work for you too!)
Don’t have a business? Why you should start one. The key to the acquisition of wealth is business ownership. More fortunes are made through business ownership than any other method of acquiring wealth (e.g., inheriting it, winning lottery, marrying rich, finding gold, or striking oil). A big part of the reason behind this is that there are tremendous tax benefits to owning a business. It doesn’t have to be a complicated business, you don’t have to have employees, and you don’t need to set up a business entity such as a corporation or an LLC. All you need is a sale to have a business. It can be as simple as owning a rental property, signing up for a multi-level marketing business, or opening a lemonade stand. (I plan to talk more about the benefits of starting a business and why and how to do so in a future article).
Have a Summer Home or Vacation Property? You can rent it out for up to 15 days per year without paying any federal taxes on the rental income. Even if you don’t have a summer home, you can go on vacation and rent out your primary residence for 15 days without paying income taxes, which just might pay for your vacation—just be sure you rent it out to someone you can trust or put the valuables in your safe deposit box so you don’t come home to an empty house!
Summer Travel Plans. Make the purpose of the trip for business and deduct all the expenses to get to and from the business destination even if you tack on a few days of pleasure in between. You can deduct all business related expenses, but not the costs related to the pleasure portion. (However, you can have a lot of fun while on business and you can even take a 50% deduction for any business entertainment such as taking clients, customers, or vendors out to a sporting event, theater, golfing, concert, etc.)
Summer BBQ. Many of us already plan to do a summer BBQ. It’s lots of fun and really nice to break out the grill and cook up some good food whether at the beach or in your own backyard. If you have a business, invite your employees, customers, or vendors to make it a business purpose and tax-deductible. If you don’t have a business yet, this is another great reason to start a simple one.
I hope these tips were useful for you. If you have any questions about how to best apply these tax savings in your situation, feel free to call our office and make an appointment to speak with one of our estate and tax planning specialists. Enjoy the summer!
© OKURA & ASSOCIATES, 2014
Honolulu Office (808) 593-8885
Hilo Office (808) 935-3344
Ethan R. Okura received his Doctor of Jurisprudence Degree from Columbia University in 2002. He specializes in Estate Planning to protect assets from nursing home costs, probate, estate taxes, and asset protection.
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This written advice was not intended or written to be used, and it cannot be used by any taxpayer, for the purpose of avoiding penalties that may be imposed on the taxpayer. (The foregoing legend has been affixed pursuant to U.S. Treasury Regulations governing tax practice.)
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This column is for general information only. The facts of your case may change the advice given. Do not rely on the information in this column without consulting an estate planning specialist.