Tax Benefits

Tax benefits seem like an oxymoron because how can anything with the word 'tax' associated with it provide any benefit. Not all tax is terrible, and in fact, there are indeed benefits.  

When talking tax, benefits come in the form of deductions, credits, and exclusions, and they can do wonders in reducing your tax bill.  There may be some specific requirements you must meet to reap the benefits of these tax-reducing allowances.   

The tax benefit that we hear the most about is the tax deduction.  Charitable gifts, tuition, and medical fees are just a few of the tax-deductible items.  These deductions reduce your taxable income by lowering your net earnings so that it can be very beneficial.

Another tax benefit that many aren't as familiar with is the exclusion.  The great thing about the exclusion is that its income that's never reported on your tax return.  This is considered tax-free income.  If you've ever earned income while outside the U.S, you know this benefit all too well.  This tax law allows you to exclude up to $105,900 for the tax year 2019, as long as you're in a foreign country for most of the tax year.

A tax credit can provide significant savings even more so than a deductible. It provides a dollar-for-dollar reduction in the amount of income tax you owe instead of lowing your income as the deductible does.  There is a list of expenses that are subject to tax credits, such as alarm systems, college tuition, or solar energy panels.

The final credit you hope you're not familiar with is the capital loss credit.  Losing money is uncomfortable and unpleasant, but not all is lost because the loss may provide you with a tax benefit.  Capital loss, that which you'd experience when you sell stocks for less than what you originally paid for them, are subject to a credit.  You must calculate the loss with your capital gains.  The Schedule D attachment to your income tax return can provide further detail on this credit.

Tax credits can be relatively easy to identify except for perhaps the capital loss credit.  Our tax accounts at Lewis CPA are always on hand to answer any questions you may have around what credits you qualify for and all tax questions in general.

Should You Hire Your Son or Daughter?

Being the owner of a small business is a wonderful thing because you can make your own decisions about who to hire. However, when you’re a parent, hiring decisions can sometimes get a little tricky.

You COULD hire your child to work for you, but SHOULD you? While, ultimately, you know your child better than anyone and thus are the only person who can really make that decision, there are a few good reasons that you might want to think about doing so.   

Reason to Hire #1: You’ll Teach Your Kids a Thing or Two

If you do choose to hire your child or children to work for you, you’ll (probably) be teaching the kiddos a thing or two about work ethic.

We say probably because the value of this learning opportunity really falls on you. If you give your kids special treatment and let them slide on the rules, they won’t learn anything- plus you’ll probably earn some disgruntled employees complaining of favoritism and unfair treatment to boot.

If, however, you do your part and make your kids follow the same rules as everyone else, you’ll be setting them up for a lifetime of working success and acquiring a good worker for your business as well.

Reason to Hire #2: Tax Benefits

If you hire your kids and find that they’re willing and able to do the work, you’ll enjoy an awesome tax benefit, which, in and of itself, is reason enough to hire your kin!

As long as the offspring working for you is under 18, you won’t have to withhold any payroll taxes, pay any taxes, or pay unemployment taxes. You and your child will also enjoy the standard deduction, and your kiddo can contribute to an IRA as well, taking some of the future financial burden off of you. It’s a win-win all around, as long as your child can do the work required of him or her.

However, there are always special circumstances and rules when it comes to tax law, so check with your accountant or tax advisor before applying any of these tips to paper.

Reason to Hire #3: Happiness

And you thought we were all about money. While financial matters are important, at the end of the day, the most important thing is the relationship you have with your family, especially your children.

When you keep your kiddos close- and what could be closer than having them work for you?- you’ll be involved in your kids’ lives and aware of what they’re doing.

And, yes, we do have to take it back to the financial side of things, this could prevent costly legal fees in the future, help your kid to pay for college so the burden isn’t all on you, and make your child more responsible with money all around, which also helps your future self.

So, Mom or Dad, what are you waiting for? Hire Junior and see how things work out!