** By Guest Author: Christopher G. Ragain, CPA/PFS **
When I was growing up, the holidays created some of my most cherished and powerful memories I have as a kid. Playing with siblings and cousins, quiet times with my parents watching the fire and singing songs, and of course…. Always getting my salary check from my Dad’s drywall business….
Wait, what? Salary check? That’s weird right!
Yes, every year my father would pay us kids for all the work we did during the year in the form of a net pay check from his Drywall company. We were told to cash it, then go pay the light bill, groceries, car payments, etc…
Now it is getting really weird right? Let me explain…
Holiday Tax Tip #1- Pay your kids up to $6,300
Most parents that own a small business sometimes have the kids work there in the summer or after school. Farms have been doing it for hundreds of years. My dad did too. Not just for tax reasons, having children work builds character and an understanding of the value of money.
But… It is also a great tax planning strategy. You see, every kid can earn up to $6,300 income tax free. That’s because everyone that needs to file a tax return, gets to use something called the “standard deduction”. This amount for 2015 is $6,300.
When my father paid me, he got to take a deduction for my $6,300 salary. But when I went to file my tax return, I did not have to pay any tax because of the standard deduction! Cool right? If you have a few kids, it can add up.
Then, when you pay your kids, have THEM go buy the groceries, pay the utilities, etc.. It’s a great way to show them the ropes of REAL LIFE! Just make sure your kids really do the work, and that they are at least 7 years old…
If you are a sole proprietor or partnership, there are some added payroll tax benefits as well. Also, if you start combining IRA’s or 401k’s to the mix, your savings can get really big!
Holiday Tax Tip #2- Tax Free Municipal Bonds
December may also turn out to be the first month that the Federal Reserve raises rates. If not, the raise will be coming soon. For decades, children have received Federal Savings Bonds as gifts around the holidays.
However, as interest rates go up, instead of buying the grandkids a savings bond, why not get a Tax Free Muni Bond instead?
Many municipal bonds have long durations (even 30 years) and pay interest often quarterly or semi-annually. The great thing about the interest, is that it is free from federal income tax! And , if you buy bonds in your home state, you can even avoid state income tax!
If you compare that to a savings bond (which is taxable interest) there is a compelling reason to go tax free and buy municipal bonds instead! Ho ho ho…. Merry Muni Bond!!
Holiday Tax Tip #3- Residential Energy Efficient Property Credits
On Black Friday you can find some rock bottom prices on appliances for the house at many of the big box retailers and small business appliance stores. This year, why not treat yourself to your very own Wind Turbine!
Not a wind guy or gal? Then solar water heaters and electric equipment will do the trick too. You can get a tax credit of up to 30% of the cost of one of these systems. Since it is the end of the year, try and have it purchased before Dec. 31st!
To take advantage of the credit use Form 5695 and if you need help, maybe consult your local tax professional…
The holidays are also a great time to get your free “Lite” version of Tax Planner Pro. Our app will calculate your tax projection and show you these tips as well as dozens of others so you can take full advantage of the tax code this year!
Happy Holidays, Merry Christmas, and here is to a VERY SUCCESSFUL 2016!
Christopher G. Ragain, CPA/PFS
Founder, Tax Planner Pro LLC