Tax Tips for June 2016
In this post we’ll cover important tax tips for the beginning of Summer 2016! Get important information about IRAs, Summer Jobs, and Filing Reminders!
A reminder that a charitable tax break for IRA owners is permanent. Individuals who are age 70 ½ and older can transfer up to $100,000 annually form their IRAs directly to charity at any time during the year. The big tax package passed last December made this tax break permanent. This means you needn’t wait until year end anymore to see whether you can take advantage of this easing. Note these transfers count as part of your yearly required minimum distribution.
There are several tax benefits of these direct IRA payouts to charity. The distributions are not taxable and thus won’t cause you to have extra income that could cost you itemized deductions, or trigger more tax on your Social Security benefits. Of course, you cannot also deduct the donation.
Here’s an idea to help a child to or grandchild who will be working this summer. Consider making a contribution to a Roth IRA for him or her this year. You can put in up to $5,500, but the amount can’t exceed the child’s 2016 earnings. The payin count toward the $14,000 gift tax exclusion ($28,000 if you spouse agrees).
There are key tax benefits to Roths: all withdrawals make after age 591/2 are nontaxable. Up to $10,000 of earning can be taken out tax-free by the child to buy a first time home. And contributions can be pulled out tax free at any time.
Many students with summer jobs can escape federal income tax withholding form their pay checks if they owed no income tax for 2015 and don’t expect to owe for 2016. Just write “Exempt” on the W-4. Kids who can be claimed as dependents don’t qualify if they’ll have more than $350 in investment income and over $1,050 in total income. Workers who are able to block income tax withholdings could still see their pay nipped by the 7.65% levy on employees that helps pay for Social Security and Medicare.
Hiring your children can lower your payroll tax bill. No FICA tax is due if sole proprietors or husband-wife partnerships hire their kids who are under age 18. Ditto if the kid works for a parent’s one-person LLC that’s disregarded for tax purposes. Also, federal unemployment tax is not owed on their salaries until they reach age 21.
A deadline for calendar-year tax-exempt groups is right around the corner. Their 2015 tax returns are due May 16th. Filing is simple for organizations with average annual gross receipts of $50,000 or less. They can e-file form 990-N with the Internal Revenue Service instead of using Form 990 or 990-EZ. Just a reminder, the agency will revoke the exemption of the groups that fail to file three years in a row.
Source: The Kiplinger Tax Letter, May 6, 2016