Learning Center for Tax and Financial Insights

Article Highlights: Employing a ChildChild Payroll TaxesFUTA Tax for a ChildChild IRA ContributionsChild Tax-Free IncomeSpouses Working in the Same BusinessPartnershipSpousal Joint VentureSpouse EmployeeAlong with the holidays comes a lot of extra work for many family-run businesses, which may require putting the kids to work and having a spouse help out over the busy time. There are special tax rules when hiring your children and also for your spouse, depending on whether he or she is a business partner or an employee. Employing Your Child – Tax reform provided a more taxpayer-friendly tax treatment for children with earned income. Generally, when a child under the age of 19 or a student under the age of 24 without any investment income is claimed as a dependent of the parents, the child can earn up to $12,950 in 2022 without incurring any tax liability. If they earn more, then the next $10,275 is taxed at 10%. A reasonable salary paid to a child reduces the business-owner parents’ self-employment income and tax by shifting income to the child.Example: You are in the 22% tax bracket and own an unincorporated business. You hire your 17-year-old child (who has no investment income) and pay the child $14,000 for 2022. You reduce your income by $14,000, which saves you $3,080 in income tax (22% of $14,000), and your child has a taxable income of $1,050 ($14,000 less the $12,950 standard deduction), on which the tax is $105 (10% of $1,050). Thus, the net income tax saved by the family is $2,975 ($3,080 − $105). If the business is unincorporated and the wages are paid to a child under age 18, the wages will not be subject to FICA – Social Security and hospital insurance (HI, aka Medicare) – taxes since for FICA tax purposes, employment doesn’t include services performed by a child under the age of 18 while employed by a parent. Thus, the child will not be required to pay the employee’s share of the FICA taxes, and the business won’t have to pay its half either. In addition, by paying the child and thus reducing the business’s net income, the parent’s self-employment tax payable on net self-employment income will also be reduced.Example: Expanding on the previous example and assuming your business profits are $130,000, by paying your child $14,000, you will reduce not only your self-employment income for income tax purposes but also your self-employment tax (the HI portion) by $375 (2.9% of $14,000 times the SE factor of 92.35%). But if your net profits for the year were less than the maximum SE income ($147,000 for 2022) subject to Social Security tax, then the savings would include the 12.4% Social Security portion in addition to the 2.9% HI portion.A similar but more liberal exemption applies for FUTA, which exempts the earnings paid to a child under age 21 while employed by his or her parent from federal unemployment tax. The FICA and FUTA exemptions also apply if a child is employed by a partnership consisting solely of his or her parents. However, the exemptions do not apply to businesses that are incorporated or a partnership that includes non-parent partners. Even so, there's no extra cost to your business if you pay a child for work that you would pay someone else to do anyway.Additional savings are possible if the child is paid more or worked part-time during the year or in the summer and deposits the extra earnings into a traditional IRA. For 2022, the child can make a tax-deductible contribution of up to $6,000 to his or her own IRA. The business may also be able to provide the child with retirement plan benefits, depending on the type of plan it uses, its terms, the child's age, and the number of hours worked. By combining the standard deduction ($12,950) and the maximum deductible IRA contribution ($6,000) for 2022, a child could earn $18,950 in wages and pay no income tax.Example: Referring back to the original example, making a $6,000 traditional IRA contribution will only save the child $600 in tax, so it might be appropriate to make a Roth IRA contribution instead, especially since the child has so many years before retirement and the future tax-free retirement benefits will far outweigh the current $600 savings. Contributions to Roth IRAs aren’t deductible, but distributions are generally tax-free.

There's an old saying that reminds us that there are only two certainties in this life: "death, and taxes." Whoever coined that phrase couldn't have known how true it was, particularly when it comes to the latter portion.The Internal Revenue Service recently came out with its annual Enforcement Report, and the numbers themselves don't lie. In addition to the overall instances of tax fraud that were identified that totaled $5.7 billion, the IRS further found another $26.9 billion in financial crimes. All told, there were over 1,200 warrants executed in the last year alone, which are in addition to the 1,837 crimes that were ultimately referred for prosecution.All of this is to say that if you've ever considered the idea of hiding income from the IRS, the numbers are very firmly against you.Overall, the IRS has a staggering 99.6% conviction rate when it comes to these types of crimes. To put that into perspective, in 2018 there were 79,704 cases filed by the federal government for a myriad of different crimes. Of that total, only 320 resulted in acquittals - meaning that you're more likely to get away with a drug offense, a property offense, or even a violent crime than you are lying to the IRS.All of this is to say that there is a lot that can go wrong if you are a tax evader and are in the process of actively running afoul of the Internal Revenue Service. This is true for a wide range of different reasons, all of which are worth exploring.The Consequences of Being a Tax Evader: What You Need to KnowIf the IRS identifies some type of discrepancy on the return that you file, at a bare minimum they will likely send you a notice. This is true whether or not they suspect that the issue was a result of malicious intent.Keep in mind that the IRS doesn't just get information about your tax returns every year from the filer. They're also comparing information obtained from employers, payment processors, banks, and other financial institutions. If there is anything that doesn't formally line up between those sources, you will likely get a notice in the mail with a request to provide additional documentation.

If you had to make a list of some of the most successful video games of the mobile era, "Angry Birds" would undoubtedly be right at the top.According to one recent study, it has been downloaded more than four billion times as of 2019 and has a massive 9.2 million monthly active users. It's generated $116 million in revenue and even spawned a feature film that grossed more than $350 million at the box office...... all for a product that was essentially a "backup plan" for the game's original developers. Yes, that's right - "Angry Birds" wasn't just an "afterthought" in the traditional sense of the term.It was essentially the 52nd afterthought this particular team of people happened to have.Angry Birds: The Story So FarPerhaps one of the most important things to take away from the "Angry Birds" story is the myth that "overnight success" is precisely that.The company itself had been founded back in 2003 when a collection of students decided to enter a video game creation competition. Afterward, they thought it would be "fun" to start their own game studio - a dream that many before (and since) have shared.Soon, they realized that making video games wasn't the difficult part. It was getting them distributed that was an uphill battle.All told, the team at Rovio made 51 different games in an attempt to test the market. Even after the first iPhone was released in 2007, they kept trying. What was the market looking for? How did they provide simplistic gameplay with a catchy enough "hook" that would harken back to the games they used to play as kids? Would it be possible for them to marry their love of science fiction titles with their idea in a way that would be appealing to the iPhone's then-new massive customer base? These (and more) were all questions that they struggled to answer.

December 1 - Time for Year-End Tax PlanningDecember is the month to take final actions that can affect your tax result for 2022. Taxpayers with substantial increases or decreases in income, changes in marital status or dependent status, and those who sold property during 2022 should call for a tax planning consultation appointment.December 12 - Report Tips to EmployerIf you are an employee who works for tips and received more than $20 in tips during November, you are required to report them to your employer on IRS Form 4070 no later than December 12. Your employer is required to withhold FICA taxes and income tax withholding for these tips from your regular wages. If your regular wages are insufficient to cover the FICA and tax withholding, the employer will report the amount of the uncollected withholding in box 12 of your W-2 for the year. You will be required to pay the uncollected withholding when your return for the year is filed.

December 1 - EmployersDuring December, ask employees whose withholding allowances will be different in 2023 to fill out a new Form W4 or Form W4(SP).December 15 - Social Security, Medicare and Withheld Income TaxIf the monthly deposit rule applies, deposit the tax for payments in November.December 15 - Nonpayroll WithholdingIf the monthly deposit rule applies, deposit the tax for payments in November.

It’s probably your busiest month of the year. But there are things you can do to make your return from the holidays less stressful.December always goes by so quickly. Seems like you’ve just finished Thanksgiving dinner and it’s time to ring in the New Year. You could probably spend the entire month on your personal obligations. But it’s also the end of the year, which means your busiest period if you’re a retailer. Even if you’re not, you probably have sales goals to try to meet. And you may have employee issues that need to be addressed before the calendar turns over.On top of all of this, you should be closing out your books for the current year (as much as you can) in preparation for the new one. If you’ve been using QuickBooks Online conscientiously all year, your job will be a lot easier. But you’ll still need to carve out some time for year-end tasks.We don’t expect that you’ll necessarily be able to wrap absolutely everything up by New Year’s Eve. You may be waiting for your customers and employees to do their part. But here are five things you can do amidst all of your other personal and professional plans that will help you get a jump on January.Analyze your 2022 sales.You won’t have your final numbers until the year is over, but you can get a good start in December. There are several QuickBooks Online reports that can give you a clear, understandable look at your 2022 sales. Click Reports in the toolbar and scroll down to Sales and customers. You can run reports that will tell you what your sales were by Class, Customer, Customer Type, and Product/Service, in summary or detail. The reports are customizable, so you can specify date ranges and group the results by, for example, Transaction Type, Customer, and Account.You can customize and run QuickBooks Online’s Sales reports.Warning: If you’re not clear about whether you should run reports in Cash or Accrual mode, let us help you with this. The distinction is important.Know What You OweIf money is tight at the end of the year, this will be a challenge. But you don’t want to come back from the holidays to a lot of past-due notices. To see what still needs to be paid, click Reports again and scroll down to What you owe. If you want the straight scoop right away, run Unpaid Bills. For a more detailed look, create the Accounts payable aging detail report. This groups your outstanding payables by days past due.Know Who Still Owes You MoneyThis is a question that’s probably on your mind all year, but it’s especially important as the year winds down. It may be difficult to get delinquent customers to pay up in December, but you should at least know where you stand with them. Click the Reports tab again and scroll down Who owes you. Generate two reports there: Accounts receivable aging detail and Open Invoices.