TaxTactics – August 2014
Tax Tips
Business owners: Hire your kids to save taxes
If you hire your children, they’re under 18 and your business is unincorporated, neither the business nor the kids have to pay Social Security or Medicare taxes on their wages. Shifting income to your children this way can also reduce your family’s income tax bill because your kids are likely in a lower tax bracket.
Are you eligible for an in-plan Roth rollover?
Roth accounts in 401(k), 403(b) or 457(b) plans can offer tax advantages over traditional retirement accounts, especially for taxpayers whose incomes are too high for them to contribute to a Roth IRA. Plans that include a Roth option can allow employees to roll over amounts from their traditional accounts into a designated Roth account (subject to tax on the amount rolled over).
But until recently, these in-plan rollovers were limited to employees who were eligible for a distribution (because, for example, they had reached retirement age or had left the company). Now plans may allow any employee to roll over eligible amounts into a Roth account.
Tax Court upholds net gift arrangement
In a recent decision, the U.S. Tax Court, overruling a previous Tax Court decision, held that a gift’s value for gift tax purposes may be reduced if the recipient agrees to assume the donor’s potential estate tax liability.
Under federal law, if a donor dies within three years of making a gift, the property is pulled back into his or her taxable estate. In Steinberg , the court allowed the donor to reduce the value of her gift by the actuarial value of the recipients’ obligation to pay any potential estate taxes.
This case may open the door to new estate planning strategies using “net gifts.”
100% deductions for certain M&E expenses
Generally, businesses are limited to deducting 50% of allowable meal and entertainment (M&E) expenses. But certain expenses are 100% deductible, including expenses:
- For food and beverages furnished at the workplace primarily for employees,
- Treated as employee compensation,
- That are excludable from employees’ income as de minimis fringe benefits,
- For recreational or social activities for employees, such as holiday parties, or
- Paid or incurred under a reimbursement or similar arrangement in connection with the performance of services.
If your company has substantial M&E expenses, you can reduce your tax bill by separately accounting for and documenting expenses that are 100% deductible. If doing so would create an administrative burden, you may be able to use statistical sampling methods to estimate the portion of M&E expenses that are fully deductible. •
This material is generic in nature. Before relying on the material in any important matter, users should note date of publication and carefully evaluate its accuracy, currency, completeness, and relevance for their purposes, and should obtain any appropriate professional advice relevant to their particular circumstances.
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