Tax Savings for Affluent Families-Page 3-Kiplinger

TAXES


Tax Savings for Affluent Families

Rental Property

Watch the calendar at your vacation home. If you hope to deduct losses attributable to renting the place during the year, be careful not to use the house too much yourself. As far as the IRS is concerned, "too much" is when personal use exceeds more than 14 days or more than 10% of the number of days the home is rented. Time you spend doing maintenance or repairs does not count as personal use, but time you let friends or relatives use the place for little or no rent does.

Take advantage of tax-free rental income. You may not think of yourself as a landlord, but if you live in an area that hosts an even that draws a crowd (a Super Bowl, say, or the presidential inauguration), renting out your home temporarily could make you a bundle—tax-free—while getting your out of town when tourists overrun the place. A special provision in the law lets you rent a home for up to 14 days a year without having to report a dime of the money you receive as income.

Your Children

Fund a Roth for you child or grandchild. As soon as a child has income from a job — such as babysitting, a paper route, working retail — he or she can have an IRA. The child's own money doesn't have to be used to fund the account (fat chance that it would). Instead, a generous parent or grandparent can provide the funds, or perhaps match the child's contributions dollar for dollar. Long-term, tax-free growth can be remarkable.

Minimize the bite of the kiddie tax. The rule that taxes on a child's income at the parents' rate now covers children up to age 18. You can minimize the damage by steering a child's investments into tax-free municipal bonds or growth stocks that won't be sold until the child turns 18.

Advertisement

Help your children earn credit for retirement savings. This credit can be as much as $1,000, based on up to 50% of the first $2,000 contributed to an IRA or company retirement plan. It's available only to low-income taxpayers, though, who are often the least able to afford such contributions. Parents can help, however, by giving an adult child (who cannot be claimed as a dependent) the money to fund the retirement account contribution. The child not only saves on taxes but also saves for his or her retirement.

Tally adoption expenses. Thousands of dollars of expenses incurred in connection with adopting a child can be recouped via a tax credit, so it pays to keep careful records. The credit can be as high as $13,190. If you adopt a special needs child, you get the maximum credit even if you spend less.

Pay child-care bills with pre-tax dollars. After taxes, it can easily take $7,500 or more of salary to pay $5,000 worth of child care expenses. But, if you use a child-care reimbursement account at work to pay those bills, you get to use pre-tax dollars. That can save you one-third or more of the cost because you avoid both income and Social Security taxes. If your boss offers such a plan, take advantage of it.

Editor's Picks From Kiplinger

You can get valuable updates from Kiplinger sent directly to your email. Simply enter your e-mail address and click "sign up".

More Sponsored Links


Advertisement
Get valuable updates from Kiplinger directly to your e-mail

Market Update

Advertisement

Featured Videos From Kiplinger