We have seen many of you and here are the top 5 questions we are being asked plus a BONUS planning idea for business owners.
TOP FIVE QUESTIONS
Is my real estate tax, sales tax, and property tax still deductible? Yes and No. The “SALT” taxes are limited to a maximum of $10,000. So yes they are deductible however many are finding that with property taxes rising they are getting capped.
Is the mortgage interest on my house deductible? Yes, however, the standard deduction has risen and now is $24,000 for married couples, $18,000 for the head of households and $12,000 for single filers. There are also limitations on the amount of the mortgage which for loans taken out after December 16, 2017, the loan is capped at $750,000.
I took out a home equity loan on my house and used the money to pay off credit cards and student loans. Is the interest deductible? NO. The interest is only deductible is the money is used to buy, build or improve the property that the loan is taken out against.
Why is my refund smaller than last year? In January/ February 2018, the IRS issued new withholding tables which increased most employees pay. Now, when you file your return you are getting a smaller refund. Personally, I like to owe the IRS $1.00 each year. Stop giving the IRS an interest-free loan and use the increase in cash flow to increase your retirement plan contribution or your emergency savings.
My personal exemption is gone. What happened? With the larger standard deduction, the personal exemption was eliminated. As a benefit to families with children under the age of 17, you now get a $2,000 credit for each child. Credit is like withholding or a payment.
BONUS PLANNING IDEA for BUSINESS OWNERS
Put The Kids On Payroll? – Now that each child qualifies for up to a $12,000 standard deduction, you need to ask yourself whether or not putting your kids on the payroll is a good idea. And, you may be wondering how old do they need to be to legitimately be on the payroll?
Say you operate your business as either a sole proprietorship, as a single-member LLC that is treated as a sole proprietorship for tax purposes, as a husband-wife partnership, or as an LLC that is treated as a husband-wife partnership. Great! That means you can hire your under-age-18 child (as a legitimate employee) and his or her wages will be exempt from Social Security tax, Medicare tax, and federal unemployment (FUTA) tax. In fact, the FUTA tax exemption lasts until your employee-child reaches age 21. You can hire your child part-time, full-time, or whatever works for you and the kid.
Thanks to the Tax Cuts and Jobs Act (TCJA), your employee-child can use his or her standard deduction to shelter up to $12,000 of 2018 wages paid by your business from the federal income tax. For 2017, the standard deduction was only $6,350, but the TCJA nearly doubled it. So, under the new law, your child can shelter almost twice as much wage income with the increased standard deduction. That makes hiring your kid a better idea than ever.
Bottom Line: For 2018, your child will owe nothing to the Feds on the first $12,000 of wages, unless the kid has income from other sources. Your kid can then set aside some or all of the wages and contribute money to a Roth IRA (more on that later) or a college fund. (source; MarketWatch)
If you are thinking about hiring your child make sure you have a legitimate job description, and the pay equals what you would pay an outside person doing the same job. With the new world of social media and technology, maybe there are some tasks that your child can do even better than you!
Do you have a question that needs to be answered?
Set up a phone conversation and we can guide you towards that best answer for you, your family or your business.
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Michael Tannery CPA CDFA® AIF® ● CEO
Registered Principal
Be A Financial Olympian™
