Summer Tax Strategies: Leveraging Family Payroll and 529 Plans to Lower Liability

For small business owners and parents, the summer months offer unique opportunities to optimize tax strategies. One of the most effective methods for business owners is hiring their own children. If the work is legitimate and the pay is reasonable, the wages are deductible as a business expense, effectively shifting income from the parent's higher tax bracket to the child's lower bracket—and frequently avoiding Social Security taxes if the child is under 18.

Beyond payroll, business owners should use the second quarter to identify decisions that could materially change their taxable income before year-end. This includes evaluating entity treatment, estimated payments, and potential equipment purchases that qualify for depreciation. Summer is also an ideal time to reassess 529 college savings plans. Some states, like Pennsylvania, offer tax deductions for contributions regardless of which state’s plan is used, providing a flexible way to lower tax liability while saving for education.

Families looking to transfer wealth should also demystify the gift tax. While large gifts must be reported to the IRS, the lifetime exemption is currently so high that most families will never actually owe the tax. For those involved in real estate, investigating 1031 exchanges and Delaware Statutory Trusts (DSTs) can offer a way to defer capital gains and build a diversified portfolio. Asking the right questions about sponsor track records is essential before committing to these complex tax-deferral vehicles.