Some Tax Tips for your Entity
by Bukre Ayan
The Tenth in a Series of Articles for Entrepreneurs
As a business owner, you may enjoy some tax benefits by hiring your kids and turning your personal vacation into a business travel.
1- Hire Your Children – There are some tax advantages to hiring your child as an employee of your business. First, their salary will be a business expense that is deductible from the entity’s taxable income. Also, each of your children can be employed by your business and earn up to $13,850 per year in 2023 without owing any income taxes. This is the standard deduction for single taxpayers for 2023; it was $12,950 for 2022. Moreover, the IRS provides some tax advantages for businesses when the owners hire their kids. If your child is less than 18 years old, his/her wages are not subject to social security and Medicare taxes. Also, if your child is less than 21 years old, his/her wages are exempt from Federal Unemployment Act (FUTA) tax. However, to enjoy these payroll tax exemption benefits (i.e., social security and Medicare taxes and FUTA), the business must be the parent’s sole proprietorship, or an LLC or a partnership in which each owner is a parent of the child.
The IRS reviews these wage payments carefully to make sure there is a legitimate arrangement that can benefit from the tax advantages. There is nothing you should worry about as long as I) your children are bona fide employees doing real work for your business, II) their compensation is reasonable to the task and their abilities, and III) you are complying with the legal requirements of hiring an employee, like filing the Form I-9, Employment Eligibility Verification with the USCIS.
2- Turn Your Vacations into Business Trips – The IRS states that travel expenses are 100% deductible as long as (a) your trip is business related, (b) you are traveling away from your regular place of business longer than an ordinary day’s work and (c) you need to sleep or rest to meet the demands of your work while away from home. If your trip meets those criteria, while on business travel, you can deduct 100% of lodging, transportation, tolls, tips (maid tips, taxi tips, food tips, etc.), taxes (on food, hotels, and business purchases), car rental, your food. But you should keep in mind that the 100% deductibility of food expenses has only been a rule for 2021 and 2022. In 2023, business-related food expenses will go back to the regular rate of 50 percent deductible.
Here are some additional tax tips for your business trips:
– The IRS says you can deduct transportation expenses if ‘business’ is the primary purpose of the trip. If a majority of days in the trip include some business activities, you can deduct all transportation expenses and the meal expenses associated with the business days.
– And don’t forget weekends. If you have business on Friday and Monday, you can deduct all on-the-road expenses during the weekend, as long as they are ordinary and necessary. For example, during the weekend, you can deduct your hotel expenses and reasonable meal expenses.
– Regardless of weekend or weekday, you should not deduct (a) meals for non-business people (such as children) accompanying you, or (b) the costs for activities that are limited to personal entertainment, like admission to a movie theater, or travel expenses to a beach.
– Your mileage to/from the destination is fully deductible at 62.5 cents per mile for the second half of 2022.
– Don’t forget the cost of getting from your home to the airport and back again. If you drive, record and deduct the mileage and the parking fees. If you use a taxi or Uber, deduct those costs, too.
(Our next article in the February edition will be on ‘Taxes If You are Self-Employed’. To see the previous articles, please visit our website at https://www.reedbusinesslaw.com)
Please be advised that this article is not intended to provide you with any legal advice, and prior results do not guarantee a similar outcome.
Photo of Document on black surface by Nataliya Vaitkevich and photo of woman using a calculator by Mikhail Nilov from www.pexels.com
Bukre Ayan is an international associate with the firm of Reed CNY Business Law, admitted to practice law in New York and Turkey, specializing in Business, Immigration, and Real Estate Law. Spanish translations of this series are provided by Ms. Sylvia Espinosa, our firm’s legal intern from Mexico. Reed CNY Business Law represents individuals and businesses throughout Central New York and around the world. Contact us at firstname.lastname@example.org or sespinosa@ReedBusinessLaw.com.