Do you own an investment property or a business? Have you considered buying a rental property or starting a business? Are the kids going to college in a few years? If you are already planning your kids to go to college, it’s never too late to start planning for effective and efficient ways to increase your savings, lower your taxes, and improve your chances of receiving financial aid. to students.
Let’s say you already give your children an allowance. You are already paying out of pocket and you don’t get any tax benefits. With a few changes, you can turn that cash outflow into a tax-deductible expense that can even help your kids save for college. Consider hiring them to work in your business or on the rental property you own.
By paying them a reasonable salary for services like landscaping, cleaning, painting, snow removal or office administrative work like filing, filling envelopes or printing marketing flyers, you have an expense. additional deductible that decreases the net income or increases the net loss of your business or property.
And for children who earn income in the family business, there is no requirement for payroll taxes. And if you keep the amount of “earned” income below certain limits, you don’t risk paying a “kiddie” tax either. (The “Kiddie” tax limits are adjusted for inflation each year). In effect, you transferred the income of a taxpayer with a higher tax rate to a child with low or no taxable income.
Now have your child open a Roth IRA with the money you pay them and they have the added benefit of saving tax free for college since Roth IRAs can be tapped for fees. tuition without paying a penalty as long as the Roth is open for at least five years (restrictions apply).
By reducing your income, you can also reduce your Expected Family Contribution (CFE), which is the critical number used to determine the amount and type of student aid your child can get for college. The CFS is calculated using a number of things including the amount and type of parental assets as well as reported income. EFC is recalculated each time a financial aid form is submitted and is based on the assets and income from the previous year.
So, to improve your chances of getting financial aid, one strategy is to reduce your reported income. By employing your child to reduce your business or rental income, you may be able to reduce your CEF and improve the amount of support your child receives.