Rink & Robinson CPA’s will
be OPEN for the Federal Holiday
Monday February 17, 2020
Specific Instructions for Form 1099-MISC
File Form 1099-MISC, Miscellaneous Income, for each person in the course of your business to whom you have paid the following during the year:
You must also file Form 1099-MISC for each person from whom you have withheld any federal income tax (report in box 4) under the backup withholding rules regardless of the amount of the payment.
For COMPLETE IRS details
Visit the IRS
For additional help with 1099 preparation….Call our office
As a business owner, you should be aware that you can save family income and payroll taxes by putting junior family members on the payroll. You may be able to turn high-taxed income into tax-free or low-taxed income, achieve social security tax savings (depending on how your business is organized), and even make retirement plan contributions for your child.
Turning high-taxed income into tax-free or low-taxed income. You can turn some of your high-taxed income into tax-free or low-taxed income by shifting some of your business earnings to a child as wages for services performed by him or her. In order for your business to deduct the wages as a business expense, the work done by the child must be legitimate and the child’s salary must be reasonable.
For example: Suppose a business owner operating as a sole proprietor is in the 37% tax bracket. He hires his 17-year-old daughter to help with office work full-time during the summer and part-time into the fall. She earns $10,000 during the year (and doesn’t have any other earnings). The business owner saves $3,700 (37% of $10,000) in income taxes at no tax cost to his daughter, who can use her $12,400 standard deduction for 2020 to completely shelter her earnings. Family taxes are cut even if the child’s earnings exceed his or her standard deduction. That’s because the unsheltered earnings will be taxed to the child beginning at a rate of 10%, instead of being taxed at the parent’s higher rate.
Your business probably will have to withhold federal income taxes on your child’s wages. Usually, an employee can claim exempt status if he or she had no federal income tax liability for last year, and expects to have none for this year. However, exemption from withholding can’t be claimed if (1) the employee’s income exceeds $1,100 for 2020 (and includes more than $350 of unearned income (such as dividends) for 2020), and (2) the employee can be claimed as a dependent on someone else’s return. Keep in mind that your child probably will get a refund for part or all of the withheld tax when he or she files a return for the year.
Social security tax savings, too.
If your business isn’t incorporated, you can also save some self-employment (i.e., social security) tax dollars by shifting some of your earnings to a child. That’s because services performed by a child under the age of 18 while employed by a parent isn’t considered employment for FICA tax purposes.
For example: Let’s say a sole proprietor who usually takes $120,000 of earnings from the business pays $5,700 to her 17-year-old child. The sole proprietor’s self-employment income would be reduced by $5,700, saving her $165.30 (the 2.9% HI portion of the self-employment tax she would have paid on the $5,700 shifted to her daughter). This doesn’t take into account a sole proprietor’s income tax deduction for one-half of his or her own social security taxes.
A similar but more liberal exemption applies for FUTA (unemployment) tax, which exempts earnings paid to a child under age 21 while employed by his or her parent. The FICA and FUTA exemptions also apply if a child is employed by a partnership consisting solely of his parents.
Note that there’s no FICA or FUTA exemption for employing a child if your business is incorporated or a partnership that includes non-parent partners. However, there’s no extra cost to your business if you’re paying a child for work you’d pay someone else to do, anyway.
Retirement benefits. Your business also may be able to provide your child with retirement benefits, depending on the type of plan it has and how it defines qualifying employees.
For example: If it has a simplified employee pension (SEP), a contribution can be made for the child up to 25% of his or her earnings but the contribution can’t exceed $57,000 for 2020. The child’s participation in the SEP won’t prevent the child from making tax-deductible IRA contributions as long as adjusted gross income (computed in a special way) is below the level at which deductions for IRA contributions begin to be disallowed. For 2020, that figure is $65,000 for a single individual.
If you have any questions about how these rules apply to your particular situation, please don’t hesitate to call. Also keep in mind that some of the rules about employing children (such as the maximum amount they can earn tax-free) change from year to year, and may require your income-shifting strategy to change, too.
Very truly yours,
Michael E. Rink
We are celebrating our 64th year of providing accounting services!
As we hit the ground running in 2020,
we promise to keep you abreast of tax changes
and methods to cut your tax bill in the new decade.
We have many new things to offer
Like cool automated features to simplify doing business with us!
Do you really want to donate your hard earned money to the IRS?
…………………………..But if you are trying to do your own taxes online, you may be missing a lot of tax deductions. This is where we come into the picture. Call our office from now to January 1st and we will see if you need our services. No reason to come in until we have a quick chat to see if our services fit your situation. You will be speaking directly with Michael Rink, CPA.
Don’t Delay…it cost you nothing to call ~ except your time.
Who qualifies for the Child Tax Credit???
News from the Internal Revenue Service: Taxpayers who claim at least one child as their dependent on their tax return may be eligible to benefit from the child tax credit.
It’s important for people who might qualify for this credit to review the eligibility rules to make sure they still qualify. Taxpayers who haven’t qualified in the past should also check because they may now be able to claim the credit.
Here are some details about this credit:
The maximum amount of the credit is $2,000 per qualifying child.
Taxpayers who are eligible to claim this credit must list the name and Social Security number for each dependent on their tax return.
The child must be younger than 17 on the last day of the tax year, generally Dec 31.
The child must be the taxpayer’s son, daughter, stepchild, foster or adopted child, brother, sister, stepbrother, stepsister, half-brother or half-sister. An adopted child includes a child lawfully placed with them for legal adoption. They can also include grandchildren, nieces or nephews.
The child must have not provided more than half of their own support for the year.
The taxpayer must claim the child as their dependent on their federal tax return.
The child cannot file a tax return for the same year with the status married filing jointly, unless the only reason they are filing is to claim a refund.
The child must be a U.S. citizen, a U.S. national or a U.S. resident alien.
In most cases, the child must have lived with the taxpayer for more than half of 2019.
The IRS Interactive Tax Assistant tool Is My Child a Qualifying Child for the Child Tax Credit? helps taxpayers determine if a child qualifies for this credit.
In some cases, a taxpayer qualifies and gets less than the full credit. These taxpayers must have earned income of at least $2,500 to receive a refund, even if they owe no tax, with the additional child tax credit.
The credit begins to phase out at $200,000 of modified adjusted gross income. This amount is $400,000 for married couples filing jointly.
Taxpayers can use the worksheet on page 6 of Publication 972, Child Tax Credit, to determine if they can claim this credit.
If you have any questions or would like us to review your options with you please feel free to call us, (828) 322-5813.
Safety Tips for the Fun Filled Night!
•All costumes, wigs and accessories should be fire-resistant
•Avoid masks, which can obstruct vision
•If children are allowed out after dark, fasten reflective tape to their costumes and bags, or give them glow sticks
•When buying Halloween makeup, make sure it is nontoxic and always test it in a small area first
•Remove all makeup before children go to bed to prevent skin and eye irritation
•A responsible adult should accompany young children on the neighborhood rounds
•If your older children are going alone, plan and review a route acceptable to you
•Agree on a specific time children should return home
•Teach your children never to enter a stranger’s home or car
•Instruct children to travel only in familiar, well-lit areas and stick with their friends
•Tell your children not to eat any treats until they return home
•Children and adults are reminded to put electronic devices down, keep heads up and walk, don’t run, across the street
Motorists on Halloween night:
•Watch for children walking on roadways, medians and curbs
•Enter and exit driveways and alleys carefully
•At twilight and later in the evening, watch for children in dark clothing
•Discourage new, inexperienced drivers from driving on Halloween