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Tax Deductions

Turn a Summer Job into Tax Savings: Hire Your Child and Reap the Rewards

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With summer fast approaching, many small business owners are thinking about hiring seasonal help. If your child is looking to earn some extra money, why not keep it in the family? Hiring your child can benefit your business—and your household finances—thanks to several tax-saving opportunities.

Here are three valuable tax benefits of putting your child on your payroll this summer:

1. Shift Business Income and Save on Taxes

One of the most significant benefits of hiring your child is the ability to transfer some of your high-taxed income into tax-free or lower-taxed income. When you pay your child a reasonable wage for legitimate work, your business can deduct that amount as a business expense.

Example:
Let’s say you’re a sole proprietor in the 37% tax bracket. You hire your 17-year-old daughter to help with office work. She earns $10,000 during the year and has no other income. Thanks to the $15,000 standard deduction for single filers in 2025, she pays no federal income tax—while you save $3,700 in taxes (37% of $10,000).

Even if your child earns more than the standard deduction, the extra income will be taxed at their lower rate (starting at 10%), rather than your higher one.

✅ Pro Tip: Keep accurate records of hours worked and tasks completed to ensure the wages are considered legitimate and reasonable by the IRS.

2. Reduce or Eliminate Payroll Taxes

If your business is not incorporated, hiring your under-18 child can help you save even more through FICA and FUTA tax exemptions:

  • FICA exemption: Wages paid to a child under 18 employed by a parent are not subject to Social Security or Medicare taxes.

  • FUTA exemption: Wages paid to a child under 21 by a parent are exempt from federal unemployment (FUTA) tax.

This applies to sole proprietorships or partnerships only between the child’s parents. If your business is a corporation or has other partners, these exemptions do not apply—but hiring your child can still be financially beneficial.

3. Set Up a Retirement Plan for Your Child

Giving your child the opportunity to save for retirement early is a great long-term financial move. Once your child has earned income, they are eligible to contribute to a retirement account such as a Traditional IRA or Roth IRA.

  • For 2025, your child can contribute the lesser of:

    • Their earned income – This includes wages or salary your child earns from working, such as helping out in your business. If they earn less than $7,000 during the year, their maximum IRA contribution is limited to that amount.

    • $7,000 – This is the annual IRA contribution limit set by the IRS for individuals under age 50 in 2025. If your child earns $7,000 or more, they can contribute the full amount to their IRA for the year.

If your business offers a SEP IRA, you can contribute up to 25% of your child’s compensation (up to $70,000 for 2025), depending on your plan’s rules.

⚠️ Heads up: Early withdrawals from a traditional IRA before age 59½ may incur a 10% penalty, unless they qualify for an exception (such as higher education costs or a first-time home purchase).

More Than Just Tax Benefits

Beyond the financial advantages, hiring your child helps them:

  • Learn about the value of work

  • Gain business skills and responsibility

  • Build a work ethic early in life

  • Start saving for the future

 

Hiring your child can be a smart tax strategy—and a great opportunity to teach them real-world skills. Just be sure to follow IRS guidelines, pay a fair wage for actual work performed, and document everything.

If you’re considering hiring your child this summer, or want help designing a tax-smart strategy, contact our team today. Tax laws change frequently, and we can help ensure you remain compliant while maximizing your family’s savings.

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2025 IRS Standard Mileage Rate Update: Maximize Your Vehicle Expense Deductions

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The IRS has announced an increase in the 2025 standard mileage rate for business use of vehicles. This adjustment reflects slight changes in nationwide gas prices and other vehicle operating costs, providing a new opportunity for businesses and individuals to optimize tax deductions.

What Is the 2025 Standard Mileage Rate?

For 2025, the IRS has set the standard mileage rate for business use at 70 cents per mile, a 3-cent increase from the 2024 rate of 67 cents. This rate applies to gasoline and diesel-powered vehicles, as well as electric and hybrid-electric models.

The increase aligns with the slight rise in gas prices. According to AAA Fuel Prices, the national average price of a gallon of regular gas on January 17, 2025, was $3.11, up from $3.08 a year earlier. However, the mileage rate calculation takes into account more than just fuel costs.

How Is the Standard Mileage Rate Calculated?

The IRS adjusts the business mileage rate annually based on a comprehensive study of both fixed and variable vehicle operating costs. These costs include:

  • Fuel prices
  • Maintenance
  • Repairs
  • Insurance
  • Depreciation

In some cases, if there’s a significant fluctuation in gas prices during the year, the IRS may revise the rate midyear to reflect current conditions.

Choosing Between the Standard Mileage Rate and Actual Expenses

When deducting vehicle expenses for business, you have two primary options:

  1. Standard Mileage Rate
    • A straightforward approach, eliminating the need to track every individual expense.
    • Requires you to log business mileage, including dates, destinations, and trip purposes.
  2. Actual Expense Method
    • Allows you to deduct all actual vehicle expenses, such as fuel, maintenance, repairs, insurance, and registration fees.
    • Enables depreciation allowances for the vehicle, though certain limits may apply.

For many businesses, the standard mileage rate is a convenient option, especially when reimbursing employees for using their personal vehicles for business purposes.

Benefits of Using the Standard Mileage Rate

  • Simplified Recordkeeping: No need to track every expense—just mileage logs.
  • Employee Reimbursements: A tax-efficient way to reimburse employees, helping retain those who drive extensively for business purposes.
  • Tax Savings: Employee reimbursements using this rate are not considered taxable income.

When the Standard Mileage Rate Cannot Be Used

The cents-per-mile method is not always available. Restrictions may apply if:

  • You’ve previously claimed actual expenses for the same vehicle.
  • The vehicle is new to your business and you plan to take advantage of first-year depreciation tax breaks.
  • The vehicle does not meet IRS eligibility requirements for the standard mileage rate.

Preparing for 2025 and Beyond

Understanding when and how to use the standard mileage rate versus actual expenses is crucial for maximizing your deductions. With proper planning, you can reduce your tax liability and simplify expense tracking.

If you have questions about using the 2025 standard mileage rate, tracking vehicle expenses, or preparing your 2024 tax return, our team is here to help. Reach out today for personalized assistance in navigating these deductions.

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Maximize Your Small Business Tax Savings with Local Transportation Deductions

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Understanding how to deduct local transportation expenses can help reduce your small business’s tax liability significantly. Both you and your employees likely incur transportation costs annually, and knowing which expenses are deductible can make a substantial difference come tax time.

What Is Local Transportation?

Local transportation refers to travel within your tax home when the trip doesn’t require sleep or rest. Your “tax home” is the city or general area where your primary place of business is located. If your travel takes you far enough to necessitate rest or sleep, different rules for travel deductions may apply.

Key Rules for Work Locations

The primary rule is that commuting costs are not deductible. This includes expenses for travel between your home and your regular workplace, even if you’re performing business-related tasks during the commute (e.g., making calls or sending emails).

An exception applies if you’re commuting to a temporary work location outside your usual metropolitan area. For tax purposes, a location is considered temporary if your work there is expected to last (and actually does last) for no more than a year.

Deductible Business Travel

Once you’ve reached your regular work location, local travel related to your business becomes deductible. For example:

  • Travel from your office to meet a client.
  • Trips to pick up supplies or visit a job site.
  • Travel between two business locations you own or operate.

The Importance of Recordkeeping

Maintaining accurate records is essential for substantiating your deductions. Here’s what you need to track:

  • Public transportation: Save receipts or log expenses with details about the date, destination, and business purpose.
  • Personal vehicle use: Note the mileage driven for business purposes, along with tolls and parking fees. Receipts for expenses like gas, repairs, insurance, and maintenance are also necessary if you opt to deduct actual expenses instead of using the standard mileage rate.

Your transportation deduction can be calculated using either:

  1. The Standard Mileage Rate: In 2024, the rate is 67 cents per mile, plus tolls and parking.
  2. Actual Expenses: Include gas, maintenance, insurance, depreciation, and other car-related costs. Allocate expenses between personal and business use based on the miles driven for each.

Employees vs. Self-Employed Deductions

Under the Tax Cuts and Jobs Act (TCJA), employees cannot deduct unreimbursed transportation costs from 2018–2025. These deductions, previously classified as “miscellaneous itemized deductions,” are suspended during this period.

However, self-employed individuals can still deduct qualifying transportation expenses related to their business. Starting in 2026, employees may regain the ability to deduct certain transportation expenses, provided their total miscellaneous deductions exceed 2% of their adjusted gross income.

Seek Expert Advice

Navigating tax laws can be complex, especially with potential changes on the horizon. Our team is here to help you understand your options and ensure you’re maximizing your deductions.

FAQs

1. Can I deduct the cost of commuting to and from work?
No, commuting expenses are considered personal and are not deductible, even if you perform business-related tasks during your commute.

2. Are travel expenses between two business locations deductible?
Yes, travel between business locations or for business purposes (e.g., client meetings) is deductible.

3. What’s the best way to track deductible transportation expenses?
Maintain detailed records, including receipts for public transportation or mileage logs for personal vehicles. Use either the standard mileage rate or actual expenses for calculations.

4. Can employees deduct unreimbursed transportation expenses?
Not currently. From 2018–2025, employees cannot deduct these costs due to TCJA regulations. Self-employed individuals, however, can deduct business-related transportation expenses.

Contact Us Today

Have questions or need help with your tax planning? Contact us to learn how to maximize your deductions and reduce your tax burden effectively.

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Understanding Business Meal and Entertainment Deductions for 2024: What You Can and Can’t Write Off

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If you’re unsure about the rules for deducting business meals and entertainment expenses, you’re not alone. Recent changes to federal tax laws have left many business owners seeking clarity. Below we will break down what you can and can’t deduct in 2024 to help you maximize your tax benefits while staying compliant with IRS regulations.

Current Rules for Business Meal and Entertainment Deductions

The Tax Cuts and Jobs Act (TCJA) significantly altered the landscape for deducting business-related entertainment expenses. Most entertainment costs, such as treating clients to golf outings or sporting events, are no longer deductible.

However, business-related meal expenses remain partially deductible. You can generally write off 50% of the cost of food and beverages, provided they are related to business activities or consumed during business-related entertainment.

What Food and Beverage Costs Are Deductible?

The IRS broadly defines food and beverage expenses to include everything from meals to snacks, as well as associated costs such as sales tax, delivery fees, and tips. For these costs to qualify as 50% deductible, the following conditions must be met:

  • Purchased Separately: The food and beverages must be purchased separately from entertainment activities. Alternatively, they can appear as a separate item on a bill, invoice, or receipt showing the standard selling price of the food and beverages.
  • Reasonable Value: If they aren’t purchased separately, you can deduct 50% of the reasonable value of the food and beverages.

Key Requirements for Business Meal Deductions

For a 50% deduction to apply, the following conditions must be satisfied:

  1. The meal must not be lavish or extravagant under the circumstances.
  2. You or an employee of your business must be present at the meal.
  3. The meal must involve a business associate — someone with whom you expect to conduct business, such as a client, prospective customer, supplier, or employee.

Pro Tip: You can even deduct 50% of the cost of a business meal for yourself, such as when working late into the night.

Deductions While Traveling on Business

When traveling for work, you can deduct 50% of the cost of meals. However, it’s important to keep detailed records, including receipts, to substantiate your expenses.

Note that meal expenses for spouses, dependents, or others accompanying you on a business trip are generally not deductible unless:

  • The individual is an employee of your company.
  • The trip is for legitimate business purposes.

100% Deductible Business Meal and Entertainment Expenses

Certain meal and entertainment expenses remain 100% deductible under IRS regulations, including:

  • Employee Events: Costs for recreational activities benefiting all employees, such as holiday parties or team-building events.
  • Public Events: Food, beverages, and entertainment offered at promotional events open to the public.
  • Customer Sales: Meals or entertainment sold to customers at full value.
  • Taxable Compensation: Costs reported as taxable income to employees or non-employees (e.g., a prize dinner cruise reported on Form 1099).
  • Restaurant or Catering Businesses: Food and beverages provided to paying customers and consumed by employees at the worksite.

Navigating Complex Rules

Understanding IRS rules for business meal and entertainment deductions can help you reduce your taxable income, but the regulations can be nuanced. For example, mixing entertainment and meal expenses on the same bill can create complications unless they are clearly itemized.

Bottom Line

While deductions for business-related meals and entertainment expenses are still available in some situations, navigating the rules requires careful attention to detail. Maximizing these deductions can save you money, but compliance is essential to avoid IRS scrutiny.

Have questions or need assistance with your business deductions? Contact us today to ensure you’re leveraging every allowable tax benefit.

Optimize Your Business Tax Strategy in 2024

Understanding what you can and can’t deduct for business meals and entertainment can make a big difference during tax season. Stay informed and proactive to make the most of your eligible expenses.

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Gifts, Parties, and Tax Benefits: A Guide to Grateful Celebrations

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The holiday season is here. During this festive season, your business may want to show its gratitude to employees and customers by giving them gifts or hosting holiday parties. It’s a good time to review the tax rules associated with these expenses. Are they tax deductible by your business and is the value taxable to the recipients?

Employee gifts

Many businesses want to show their employees appreciation during the holiday time. In general, anything of value that you transfer to an employee is included in his or her taxable income (and, therefore, subject to income and payroll taxes) and deductible by your business.

But there’s an exception for noncash gifts that constitute a “de minimis” fringe benefit. These are items small in value and given so infrequently that they are administratively impracticable to account for. Common examples include holiday turkeys or hams, gift baskets, occasional sports or theater tickets (but not season tickets), and other low-cost merchandise.

De minimis fringe benefits aren’t included in your employees’ taxable income yet they’re still deductible by your business. Unlike gifts to customers, there’s no specific dollar threshold for de minimis gifts. However, many businesses use an informal cutoff of $75.

Key point: Cash gifts — as well as cash equivalents, such as gift cards — are included in an employee’s income and subject to payroll tax withholding regardless of how small they are and infrequently they’re given.

Customer gifts

If you make gifts to customers or clients, they’re only deductible up to $25 per recipient, per year. For purposes of the $25 limit, you don’t need to include “incidental” costs that don’t substantially add to the gift’s value, such as engraving, gift wrapping, packaging or shipping. Also excluded from the $25 limit is branded marketing collateral — such as small items imprinted with your company’s name and logo — provided they’re widely distributed and cost less than $4 each.

The $25 limit is for gifts to individuals. There’s no set limit on gifts to a company (for example, a gift basket for all of a customer’s team members to share) as long as the cost is “reasonable.”

A holiday party

Under the Tax Cuts and Jobs Act, certain deductions for business-related meals were reduced and the deduction for business entertainment was eliminated. However, there’s an exception for certain recreational activities, including holiday parties.

Holiday parties are fully deductible (and excludible from recipients’ income) so long as they’re primarily for the benefit of employees who aren’t highly compensated and their families. If customers, and others also attend, a holiday party may be partially deductible.

Holiday cards

Sending holiday cards is a nice way to show customers and clients your appreciation. If you use the cards to promote your business, you can probably deduct the cost. Incorporate your company name and logo, and you might even want to include a discount coupon for your products or services.

Boost morale with festive gestures

If you have questions about giving holiday gifts to employees or customers or throwing a holiday party, contact us. We can explain the tax implications.

© 2023

 

Q&A below:

 

How can employers determine if a noncash gift qualifies as a "de minimis" fringe benefit?

Employers can determine if a noncash gift qualifies as a "de minimis" fringe benefit by considering its value and frequency. The IRS considers a de minimis fringe benefit to be one that has a low value and is provided infrequently. While there is no specific cutoff for the value of a de minimis gift, noncash gifts with a value of $75 or less are generally considered de minimis. In addition, gifts that are given sporadically or on special occasions—in this case, for the holidays—are more likely to qualify as de minimis.

 

What are some differences between cash and non-cash gifts to employees from a tax perspective?

Cash gifts to employees are typically considered taxable income and must be reported on the employee's W-2 form. The employer is responsible for withholding the appropriate amount of federal income tax, Social Security tax, and Medicare tax from the cash gift. Non-cash gifts, on the other hand, may be treated differently for tax purposes. If a non-cash gift is considered a de minimis fringe benefit (i.e. small in value and given infrequently), it may be excluded from the employee's taxable income. Both cash and non-cash gifts are generally deductible for the employer, limited to $25 per employee but not limited when gifting to a corporation as long as it is considered “reasonable”.

 

Are holiday parties tax-deductible?

Holiday parties are fully deductible (and excludible from recipients’ income) so long as they’re primarily for the benefit of employees who aren’t highly compensated and their families. If customers, and others also attend, a holiday party may be partially deductible.

 

Are holiday cards sent to customers and clients tax-deductible?

If you use the cards to promote your business, you can likely deduct the cost. Incorporate your company name and logo, and you might even want to include a discount coupon for your products or services.

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A Company Car Is A Valuable Perk But Don’t Forget About Taxes

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One of the most appreciated fringe benefits for owners and employees of small businesses is the use of a company car. This perk results in tax deductions for the employer as well as tax breaks for the owners and employees driving the cars. (And of course, they enjoy the nontax benefit of using a company car.) Even better, current federal tax rules make the benefit more valuable than it was in the past.

Rolling out the rules

Let’s take a look at how the rules work in a typical situation. For example, a corporation decides to supply the owner-employee with a company car. The owner-employee needs the car to visit customers and satellite offices, check on suppliers and meet with vendors. He or she expects to drive the car 8,500 miles a year for business and also anticipates using the car for about 7,000 miles of personal driving. This includes commuting, running errands and taking weekend trips. Therefore, the usage of the vehicle will be approximately 55% for business and 45% for personal purposes. Naturally, the owner-employee wants an attractive car that reflects positively on the business, so the corporation buys a new $57,000 luxury sedan.

The cost for personal use of the vehicle is equal to the tax the owner-employee pays on the fringe benefit value of the 45% personal mileage. In contrast, if the owner-employee bought the car to drive the personal miles, he or she would pay out-of-pocket for the entire purchase cost of the car.

Personal use is treated as fringe benefit income. For tax purposes, the corporation treats the car much the same way it would any other business asset, subject to depreciation deduction restrictions if the auto is purchased. Out-of-pocket expenses related to the car (including insurance, gas, oil and maintenance) are deductible, including the portion that relates to personal use. If the corporation finances the car, the interest it pays on the loan is deductible as a business expense (unless the business is subject to the business interest expense deduction limitation under the tax code).

On the other hand, if the owner-employee buys the auto, he or she isn’t entitled to any deductions. Outlays for the business-related portion of driving are unreimbursed employee business expenses, which are nondeductible from 2018 to 2025 due to the suspension of miscellaneous itemized deductions under the Tax Cuts and Jobs Act. And if the owner-employee finances the car personally, the interest payments are nondeductible.

One other implication: The purchase of the car by the corporation has no effect on the owner-employee’s credit rating.

Careful recordkeeping is essential

Supplying a vehicle for an owner’s or key employee’s business and personal use comes with complications and paperwork. Personal use needs to be tracked and valued under the fringe benefit tax rules and treated as income. This article only explains the basics.

Despite the necessary valuation and paperwork, a company-provided car is still a valuable fringe benefit for business owners and key employees. It can provide them with the use of a vehicle at a low tax cost while generating tax deductions for their businesses. (You may even be able to transfer the vehicle to the employee when you’re ready to dispose of it, but that involves other tax implications.) We can help you stay in compliance with the rules and explain more about this fringe benefit.

© 2023

Q&A below:

What are some employer and employee tax benefits associated with using a company car?

For employers, some tax benefits associated with using a company car include tax deductions for expenses related to the company car (such as fuel, maintenance, and insurance) and depreciation deductions for the value of the company car over time. For employees, some tax benefits associated with using a company car include tax-free fringe benefits if the company car is used primarily for business purposes and potential tax deductions for business-related expenses incurred while using the company car (such as parking fees or tolls).

What are some important rules and details regarding tax treatment of company cars?

It is important to distinguish between personal and business use. If the employer buys the car for the employee, the cost for personal use of the vehicle is equal to the tax the employee pays on the fringe benefit value of the car’s personal-use mileage portion. In contrast, if the owner-employee buys the car to drive the personal miles, he or she would pay out-of-pocket for the entire purchase cost of the car. Assuming the employer buys the car, personal use is treated as fringe benefit income. For tax purposes, the employer treats the car much the same way it would any other business asset, subject to depreciation deduction restrictions if the auto is purchased. Out-of-pocket expenses related to the car are deductible, including the portion that relates to personal use. If the employer finances the car, the interest it pays on the loan is deductible as a business expense (unless the business is subject to the business interest expense deduction limitation under the tax code). On the other hand, if the employee buys the auto, he or she isn’t entitled to any deductions. In this case, outlays for the business-related portion of driving are unreimbursed employee business expenses, which are nondeductible from 2018 to 2025 due to the suspension of miscellaneous itemized deductions under the Tax Cuts and Jobs Act. If the employee finances the car personally, the interest payments are nondeductible.

Are there any helpful best practices associated with supplying a company car?

Documentation and recordkeeping are essential. Personal use needs to be tracked and valued under the fringe benefit tax rules and treated as income. It is important to speak with a tax professional to ensure compliance with tax laws related to company cars.

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