Business Tip: Summertime Tax Moves
Whether your summer revolves around the beach, the garden, or just relaxing on your deck on our warm, warm evenings, I thought this would be a great time to offer you tips to help you save both money and stress as we approach my favorite time of the year.
Many self-employed people hire summer help because they need to get their clutter under control or because they enjoy helping college students with internships. Please be sure to classify these workers correctly, most likely as employees, not independent contractors! Employers like independent contractors because they are “easy” to hire and result in payroll-tax savings for the employer. However, this misclassification gives the independent contractor a substantial income tax bill at the end of the year through the self-employment tax. This isn’t just a moral issue; the IRS has been cracking down on misclassified workers, so ‘fess up if you must and know that the IRS can and will bill you for back payroll taxes! The biggest test for an employee is your control over their schedule. The more control you have, the more likely they are employees.
Hire your children. Their compensation can be considered legitimate expenses of your business, and they can provide your business a tax deduction. Moreover, their income is completely sheltered from federal income taxes up to the standard deduction of $5,800. (The next $5,000 can be sheltered by investing in a traditional IRA, which is tax-deductible to them). Do I have your attention yet?
Summer is the most popular time of the year to get hitched. If marriage (or divorce) is in your summer plans, you can avoid big headaches by reporting your name change to the Social Security Administration and the IRS now rather than waiting until tax time. Additionally, check your withholdings to make sure you are staying current with your taxes, as there are now two (or only one) of you to consider.
With the economy still on the mend, charities are hungry for donations. Do some early summer cleaning and take all your “stuff” to a qualified charity. Don’t forget to get proof of your donation, and you will need to itemize your taxes next year to claim the charitable deduction.
Tax credits for camp? Yep, many working parents must arrange for care for their younger children under the age of 13. The cost of these camps counts toward the Child and Dependent Care Credit.
Readers who are lucky enough to own a vacation home should be reminded that posting your vacation home for a 14-day rental each year is super smart. As long as your lease is less for than 15 days per year, all of the rental income is completely tax free! There are no limits on the income; however under this scenario you can’t claim the operating cost or deprecation deduction because the vacation home is not officially rental property.
highly recommend some advance planning for your next business trip and
convert the trip to a nice family vacation. Travel expenses to and from
your destination are fully deductible as along as at least one overnight
stay is legitimately required to conduct your business. Meals are
deductible during the business part of your trip, even if they are
personal. Remember meals are only 50% deductible; however all other
expenses, whether cleaning or internet connections are 100% deductible.
Your tickets to the Grand Canyon on the way to Las Vegas and the money you
lost or spent at the casino – well … I wouldn’t try it!