Tax Strategies For Married Couples, Children, And Families In 2021

It is possible to save a lot of money if you file your company tax return as a proprietorship or partnership if you have children under 18.

You may save money by hiring your children if you own a business, so don’t forget that.

Tax-deduction alternatives for those getting married or divorced, having children who worked in the business they own, or gift money to family and friends are covered in this article.

Put Your Children On Your Payroll.

Are your children under the age of 18 helping you with your business? Did you compensate them for their efforts?

If you’re going to pay them, you should do it on a W-2 basis.


W-2 earnings made by a parent to a kid under the age of 18 for labor done on the parent’s Form 1040 Schedule C business are both taxed.

  1. Employer-parent contributions are deductible for the employee
  2. Both the father and the kid are not subject to federal income taxes on their wages.

As a result, whether you conduct your firm as a sole proprietorship or single-member LLC taxable on Schedule C or as a married partnership, you do not have to pay federal payroll taxes on the W-2 wages you pay to your under-18 kid. It’s also possible to avoid state payroll taxes in most states. Your child will also not have to pay federal income taxes as a result.

Corporations must pay payroll taxes for their employees and their children. The advantages, however, are not eliminated; they are merely reduced.

Second, as a result of tax reform, your child will be able to deduct up to $12,550 in wages from their taxable income starting in 2021.

Your youngster may also donate up to $6,000 to the following two accounts.

One option is a tax-deductible individual retirement account (IRA), which allows the kid to deduct the contribution from their federal income taxes. If the youngster earns more than $12,550 in W-2 pay, this is the best method for you to employ.

Roth IRAs are non-deductible, but they allow the kid to withdraw contributions at any time without incurring taxes or penalties, and they are tax-free once the child is at least 59 1/2. If the child’s entire W-2 wages and other earned money totals less than $12,550, this is the best option to adopt.

The most important point. Paying the child’s salary on a W-2 is the only way to avoid paying payroll taxes. Your recipient kid must pay self-employment taxes on the 1099 income if you utilize a Form 1099.

Get A Divorce By The End Of The Year

The marriage rule states that if you get married on December 31, you will be married for the whole year.

In most circumstances, the combined return will be in your favor, notwithstanding the various amendments made by politicians to erase the discrepancies between married and single taxpayers. As a result, it’s possible that waiting until next year to finalize your divorce is a wise decision.

Before and after comparisons of tax returns are the only way to get a genuine sense of the impact of marriage or December 31. However, it’s a minor annoyance that can be extremely beneficial.

On the other hand, don’t file as married in April if you were married on December 31. Taxpayers that do this frequently end up overpaying their taxes.

Increase Your Mortgage Deductions By Staying Single

On the other hand, married couples are limited in their deductions for mortgage interest.

It is possible to deduct up to $1 million in mortgage interest if you own a house with someone, not your spouse, and purchased it before December 15, 2017.

There is no restriction on how much you may borrow if you acquired your home after December 15, 2017, under the TCJA. Mortgage interest can be deducted up to $1.5 million for a married couple if they’re both single.

Use The 0% Tax Bracket To Your Advantage

In the past, you might employ this tactic while dealing with a student in college. When it comes to college students, this technique doesn’t work because of the child tax, which now applies to anyone under 24.

You should consider whether or not you donate money to your parents or other loved ones so that they may live in a more comfortable environment.

You may obtain more value for your money if your loved one is in the 0% capital gains tax rate by giving these individually valued shares rather than cash.

Putting The Pieces Together 

Suppose you have a kid under 18 and run your business as a Schedule C sole proprietorship or a married partnership. In that case, you should seriously consider putting that youngster on your payroll if you are a sole proprietorship. Why?

For starters, neither you nor your kid would be responsible for paying payroll taxes on the child’s earnings.

Secondly, by increasing the standard deduction by including a conventional IRA in addition to the standard deduction, the child can avoid paying any federal income taxes on earnings up to $18,550.

Though you run your firm as a corporation, you can still reap the benefits of hiring the kid, even if both you and the child are required to pay payroll taxes on their earnings.

If you are getting divorced or married, make sure to take into consideration the mortgage ceiling accessible to singles who co-own properties, as well as the alimony regulations that will apply following the TCJA. Keep the 31st of December at the forefront of your mind. Getting married on that day means you are married for the rest of the year, and being married has an impact on your taxes.

To determine for certain what financial effect marriage has, whether good or negative, you should run the data through a tax return or have your tax expert perform this task on your behalf.

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