Maximize Deductions: Tax Strategies for Business Owners and Modern Families

Entrepreneurs and family business owners have unique levers to pull when it comes to reducing their tax burden. One of the most effective strategies is hiring your own children. If IRS rules are strictly followed, a business owner can deduct a child’s salary as a business expense, effectively shifting income from a higher tax bracket to a child’s lower (or zero) bracket. This also provides the child with earned income to start a Roth IRA.

As the second quarter nears its end, business owners must identify decisions that can materially change their taxable income. This includes reviewing estimated payments and considering entity treatment. Additionally, summer is a prime time to reassess 529 plans. While many focus on their own state's plan, some states allow tax deductions for contributions made to any state’s 529 program, offering more flexibility for educational savings.

For older homeowners, a new legislative proposal could offer significant relief. A bill currently being floated in Congress proposes a $1 million capital gains tax exclusion for certain older homeowners who sell their primary residence, doubling the current limit. Meanwhile, for those looking to support family now, experts advise not to fear the gift tax; while large gifts must be reported to the IRS, actual tax consequences rarely apply to the vast majority of families due to high lifetime exemption limits.