MONARCH ACCOUNTING GROUP
  • Home
  • Solutions
    • CFO Services
    • Cloud ACCOUNTING
    • Bookkeeping Services
    • QuickBooks Training
    • Income Taxes
    • Other Services
  • Resources
    • Tax Rates
    • SmartVault
    • Tax Tips
    • Tax Organizer
    • Record Retention Schedule
  • Reviews
  • Meet Us
  • Blog
  • Contact Us

Leveraging Kiddie Tax Rules: Tax saving tips for parents AND grandparents

12/27/2021

0 Comments

 
Picture
Now is the time to take action on reducing next year's tax bill. One area to help reduce your tax obligation is leveraging your kids to the fullest by understanding the kiddie tax rules.


Background
The term kiddie tax was introduced by the Tax Reform Act of 1986. The rules are intended to keep parents from shifting their investment income to their children to have it taxed at their child's lower tax rate. In 2022 the law requires a child's unearned income (generally dividends, interest, and capital gains) above $2,300 be taxed at their parent's tax rate.


Applies to
  • Children under the age of 19
  • Full-time students under the age of 24 and providing less than half of their own financial support
  • Children with unearned incomes above $2,300

Who/What it does NOT apply to
  • Earned income (wages and self-employed income from things like babysitting or paper routes)
  • Children that are over age 18 and have earnings providing more than half of their support
  • Children over age 19 that are not full-time students
  • Gifts received by your child during the year
How it works
  • The first $1,150 of unearned income is generally tax-free
  • The next $1,150 of unearned income is taxed at the child's (usually lower) tax rate

The excess over $2,300 is taxed at the parent's rate either on the parent's tax return


Planning thoughts
So while your child's unearned income above $2,300 is a problem, you will still want to leverage the tax advantage up to this amount. Here are some ideas:


Maximize your lower tax investment options. Look for gains in your child's investment accounts to maximize the use of your child's kiddie tax threshold each year. You could consider selling stocks to capture your child's investment gains and then buy the stock back later to establish a higher cost basis.


Be careful where you report a child's unearned income. Don't automatically add your child's unearned income to your tax return. It might inadvertently raise your taxes in surprising ways by reducing your tax benefits in other programs like the American Opportunity Credit.


Leverage gift giving. If your children are not maximizing tax-free investment income each year consider gifting funds to allow for unearned income up to the kiddie tax thresholds. Just be careful, as these assets can have an impact on a child's financial aid when approaching college age years.


Properly managed, the kiddie tax rules can be used to your advantage. But be careful, this part of the tax code can create an unwelcome surprise if not handled properly.

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 


0 Comments

Postpone Taxes with a Like-Kind Exchange :The real estate boom creates opportunity

12/20/2021

0 Comments

 
Picture
The tax law provides a valuable tax-saving opportunity to business owners and real estate investors who want to sell property and acquire similar property at about the same time. This tax break is known as a like-kind or tax-deferred exchange. By following certain rules, you can postpone some or all of the tax that would otherwise be due when you sell property at a gain.

The like-kind exchange rule
A like-kind exchange involves swapping assets that are similar in nature. Since the passage of the Tax Cuts and Jobs Act in December 2017, like-kind exchanges are now generally limited to exchanges of property. Typically, an equal swap of property is rare. Some amount of cash or debt must change hands between two parties to complete an exchange. Cash or other dissimilar property received in an exchange may be taxable.
Real estate exchanges
By using a like-kind exchange you can effectively leverage money you would need to pay for capital gains taxes and depreciation recapture tax into the next property. And with a real estate exchange, it is unusual to find two parties whose properties are suitable to each other. This isn’t a problem because the rules allow for three-party exchanges. Three-party exchanges require the use of an intermediary. The intermediary coordinates the paperwork and holds your sale proceeds until you find a replacement property. Then he forwards the money to your closing agent to complete the exchange.
Not for the faint of heart
The like-kind exchange rules are very strict. For this reason, it is always best to hire an expert to advise you prior to exploring this tax saving technique. But when done properly, exchanges let you trade up in value without owing tax on a sale. Even better, there’s no limit on the number of times you can exchange a piece of property.

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. ​
0 Comments

Plan Your 2022 Retirement Contributions

12/13/2021

0 Comments

 
Picture
As part of your planning for next year, now is the time to review funding your retirement accounts In 2022. With the cost of living calculations and increases in inflation, higher phaseout limits make many more taxpayers eligible for fully deductible contributions. So plan now to take full advantage of this tax benefit. Here are annual contribution limits for the more popular programs:
Picture
How to use
  • Identify the the type(s) of retirement savings plans that you currently use.
  • Note the annual savings limits of the plan for next year and adjust your savings to take full advantage of the annual contributions. Remember, a missed year is a missed opportunity that does not come back.
  • If you are 50 years or older, add the catch-up amount to your potential savings total.
  • Take note of the income limits within each plan type.
  • For traditional IRA’s, if your income is below the noted threshold, your taxable income is reduced by your contributions. The deductibility of your contributions is also limited if your spouse has access to a plan.
  • In the case of Roth IRAs, the income limits restrict who can participate in the plan.
Other ideas
If you have not already done so, also consider:
  • Setting up new accounts for a spouse or dependent(s)
  • Using this time as a chance to review the status of your retirement plan including beneficiaries
  • Reviewing contributions to other tax-advantaged plans like Flexible Spending Accounts (health care and dependent care) and prepaid medical savings plans like Health Savings Accounts.

"Tax Tips" are published to provide current tax information, tax-cutting suggestions, and tax reminders. If you would like more information on anything in "Tax Tips," or if you'd like to be on our mailing list to receive other tax information from time to time, please contact our office.
 
The tax information contained in this site is of a general nature and should not be acted upon in your specific situation without further details and/or professional assistance.
 
We are trusted CPA advisors servicing Burr Ridge, Hinsdale, Willowbrook, Darien, Naperville, and all Chicagoland area. 
​
0 Comments

    BLOG

    To better serve our clients and friends, to keep you up-to-date and informed, our blog is a resource for tax tips and overall accounting related articles. We hope you find this useful!


    CATEGORIES​

    All
    Business Owners: Must Know
    IRS Tax Tip
    Monthly Newsletter
    Tax Return: Must Know
    Tax Tip Of The Week


    ARCHIVES

    February 2023
    January 2023
    December 2022
    November 2022
    October 2022
    September 2022
    August 2022
    July 2022
    June 2022
    May 2022
    April 2022
    March 2022
    February 2022
    January 2022
    December 2021
    November 2021
    October 2021
    September 2021
    August 2021
    July 2021
    June 2021
    May 2021
    April 2021
    March 2021
    February 2021
    January 2021
    December 2020
    November 2020
    October 2020
    September 2020
    August 2020
    July 2020
    June 2020
    May 2020
    March 2020
    February 2020
    January 2020
    December 2019
    November 2019
    October 2019
    September 2019
    August 2019
    July 2019
    June 2019
    May 2019
    April 2019
    March 2019
    February 2019
    January 2019
    December 2018
    November 2018
    October 2018
    September 2018
    August 2018
    July 2018
    June 2018
    May 2018
    April 2018
    March 2018
    February 2018
    January 2018
    December 2017
    November 2017
    October 2017
    September 2017
    August 2017
    June 2016
    May 2016
    April 2016
    March 2016
    February 2016
    January 2016
    December 2015

    RSS Feed

Picture
Picture
Picture
Picture
Phone: (630) 320-3720

Monarch Accounting Group Inc
145 Tower Drive, Suite 4
Burr Ridge, IL 60527-7836
Email: Info@MonarchAccountingGroup.com


Picture
Picture
Picture
Picture
Picture
Picture
Picture
Picture
  • Home
  • Solutions
    • CFO Services
    • Cloud ACCOUNTING
    • Bookkeeping Services
    • QuickBooks Training
    • Income Taxes
    • Other Services
  • Resources
    • Tax Rates
    • SmartVault
    • Tax Tips
    • Tax Organizer
    • Record Retention Schedule
  • Reviews
  • Meet Us
  • Blog
  • Contact Us