The Only Year End Tax Savings Tip That Makes Sense – And Dollars
Hear we are again. I have survived over 40 of these time periods of the once a year tax gurus coming out to pour over you a tip that will save you money in taxes. You can read my other posts to find out that many of these are just plain wrong and will end up costing you money.
Well, here is the only tip I know of (and I invite you all to prove me wrong) that will save you money AND cost you nothing to do. For example, if you want to save a piddling $60 for most people, you can put $600 into an IRA. That will cost you $540.
This tip costs you NO MONEY! First you must have a sole proprietorship. A home based business. If you do not. Maybe goal number one for 2021 should be get a home based business instead of trying to lose weight again.
With a sole prop, you can pay your child that is between age 7 and 17, up to $12,000 per year. If you have not paid any in 2020, don’t despair. You may want to pay them a Christmas bonus! That’s right. For all the help they have given you in 2020 with your business.
Now, ordinarily, you would need a time sheet with hours and duties, but a Christmas bonus is just that. A bonus!
Let’s say you give your one child (and you can give more if you have more qualifying children) a bonus of $3,000.
If you are in the 20% tax bracket and show income before the bonus, this strategy will save you $600 on the low end and $1,040 on the high end.
Now you say, but I have to spend $3,000??? No, you do not. Here are the mechanics.
You write a check from your business and deposit it into your child’s checking account (that has a debit card attached).
You get a $3,000 deduction. You then take the debit card and use it to pay for expenses for your child and/or groceries, rent, car payment, etc. So, effectively, you have spent zero money!
For the tax mechanics, you will have to give your child a 1099 and do a tax return. Since the amount is under $12,000, no federal tax will be due and they are not subject to self-employment tax.
At the most, in some states and localities, a small tax will be due. Check with your individual state.
So, there is a tip that will put at least $600 into your pocket with no cost!
Want more info on taxes, see