Accounting
Tax strategies for summer daycare, jobs and vacation rentals
Summer always comes to an end, but financial advisors, tax professionals and their clients can fondly recall their fun in the sun with big savings on the next Tax Day.
Day camp for children
“We like to have biannual touch-ups with our clients,” Butler said in an interview. “That gives us time to formulate a strategy to mitigate any tax hurdles. You don’t have to wait until it’s time to file taxes. You can do it the year before.”
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A break on summer daycare
The child and dependent care tax credit carries some highly specific requirements and a maximum of $3,000 for an individual or $6,000 for a couple. In addition to the restriction related to the age of the child, the rules prohibit the cost of overnight camps from receiving the credit and limit the break to between 20% and 35% of qualifying child care expenses. Babysitting or daycare expenses do qualify, but parents must be working or looking for a job during the hours they leave kids under others’ supervision.
They also cannot be paying any members of their family for the camp or babysitting, noted Les Williams, a wealth strategist with RBC Wealth Management. The breaks are “a great valuable tax credit that they can claim,” but clients will need to work with their advisor or tax professional on complicating factors such as the particular guidelines and how they relate to employee benefits such as flexible spending accounts, Williams said in an interview.
“That’s something where you really have to work with your tax advisor to make sure that you’re not violating any of the limitations,” he said. “It can work. You just have to be very cautious about it.”
As another example, Butler pointed out that the credit isn’t available to couples who file separately. If one of the parents has a dependent care FSA through their work, they could be eligible for further savings through reimbursements of up to $5,000, he said.
“It’s a huge benefit because it comes back to you pretty much tax-free,” Butler said. “Typically that $5,000 is spread out over your paycheck for 12 months, but you don’t have to wait 12 months to use that $5,000.”
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Tax breaks for employing your kid
Clients can save in multiple ways by hiring their kids to a family business, with the caveat that they must keep accurate records and put them in an actual job with the company.
Then the savings can begin. If the business owner’s child is under 18 and they pay the child up to $14,600 for the year, the entrepreneur won’t have to pay Federal Insurance Contributions Act (FICA) taxes, the child won’t owe Uncle Sam any income duties and their parent can deduct the wages from their profit as a business expense.
That adds up to “a really innovative strategy” for self-employed clients or other business owners, Butler said.
“As long as the child doesn’t have any other income, they don’t have to file any taxes,” he said. “You don’t have to withhold the FICA taxes on the employer’s end, and the child doesn’t have to file a tax return.”
The wages could go into savings accounts such as a 529 plan or a Roth individual retirement account, Butler and Williams noted. That Roth IRA could lead to “years or decades of tax-free growth” building in the child’s account, Williams said.
“No. 1, your child’s getting some work experience, which is great,” he said. “It’s a fantastic opportunity for kids to start learning responsible financial management.”
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Renting out your property and taking home savings
Vacation rentals through Airbnb, Vrbo or independent from the popular services may open more tax doors for clients.
Homeowners — especially those living near the location
With properties that draw visitors for more than two weeks in a given year, the owners can deduct many kinds of expenses, Williams noted. He always advises clients to make sure they purchase liability insurance coverage and set up a limited liability company to receive the rental income, which effectively “insulates your assets from any lawsuit” filed by renters, he said.
Owners using Airbnb or Vrbo for short-term rentals can deduct the cost of cleaning, mortgage interest payments, insurance premiums and depreciation, according to Butler. The client may be earning money in practice, but not when it comes to their filings with Uncle Sam.
“A lot of times it results in having a business loss,” Butler said. “You may end up paying less or nothing in taxes related to your Airbnb business.”
On top of exploring these three areas of potential savings, Butler views the summer as a good time to begin thinking through employee benefits enrollment season and tax withholdings for the next year.
And Williams mentioned that teachers who are oftentimes doing some gig work or other summer jobs to supplement their incomes while paying out of their pockets as they prepare for the next school year should remember that they must report the additional pay to the government and consider
“I always encourage the teachers to keep their receipts so they can take advantage of that deduction,” Williams said.
The Governmental Accounting Standards Board issued guidance today that will require separate disclosures for certain types of capital assets for the purposes of note disclosures.
GASB Statement No. 104,
The statement requires certain types of assets to be disclosed separately in the note disclosures about capital assets. The intent is to allow users to make better informed decisions and to evaluate accountability. The requirements are effective for fiscal years beginning after June 15, 2025, and all reporting periods thereafter, though earlier application is encouraged.
The guidance requires separate disclosures for four types of capital assets:
- Lease assets reported under Statement 87, by major class of underlying asset;
- Intangible right-to-use assets recognized by an operator under Statement 94, by major class of underlying asset;
- Subscription assets reported under Statement 96; and,
- Intangible assets other than those listed in items 1-3, by major class of asset.
Under the guidance, a capital asset is a capital asset held for sale if the government has decided to pursue the sale of the asset, and it is probable the sale will be finalized within a year of the financial statement date. A government should disclose the historical cost and accumulated depreciation of capital assets held for sale, by major class of asset.
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Top 25 Firm Armanino LLP has taken on a strategic minority investment from private equity firm Further Global Capital Management.
The deal, which closed today, is the latest in the series of investments by private equity in large accounting firms that began in 2021 — but with a key difference, Armanino CEO Matt Armanino told Accounting Today.
“What’s maybe the punchline here — what’s really unique, I think — is that we wanted to focus on a minority investment that allowed us to retain not just operational control of the business, but ownership control of the business,” he said. “Those are some of the guiding principles that we’ve been thinking about over the last number of years, and we felt like if we could accomplish those things strategically with the right partner, it would really be just a home run, and that’s where we think we’ve landed.”
As is common with CPA firms taking on private equity investment, Armanino LLP will restructure to an alternative practice structure, splitting into two independently owned and governed professional-services entities: Armanino LLP, a licensed CPA firm wholly owned by individual CPAs, will provide attest services to clients, and Armanino Advisory LLC, a consulting and advisory firm, will perform non-attest services.
Inside the deal
As have many large firms, Armanino LLP had been looking at private equity for some time.
“We’ve been analyzing the PE trend over the last few years and our discussions with Further Global actually began several years ago, and along the way we confirmed our initial inclination that Further Global would be a great partner for us,” CEO Armanino said.
“We had the opportunity to meet with dozens of leading private equity firms,” he explained. “Ultimately we concluded that Further Global would be the best partner for us based on their expertise in partnering with professional service businesses in particular, and our desire for a minority deal structure.”
Robert Mooring
While citing Further Global’s “deep domain expertise” in financial services and business services firms, Armanino noted that this would be the PE firm’s first foray into the accounting profession: “This is their first accounting firm deal, and I think they’re only focused on this one at this time.”
An employee-owned PE firm,
Guggenheim Securities LLC served as the financial advisor and sole private placement agent to Armanino LLP, while Hunton Andrews Kurth LLP acted as its legal counsel. Further Global was advised by Pointe Advisory, with Kirkland & Ellis as legal counsel.
“Armanino ranks as high as any CPA firm in the country with the private equity community,” commented Allan Koltin, CEO of Koltin Consulting Group, who has advised Armanino for over two decades. “Their deal with Further Global fit just like a glove. They will keep control and now have the capital structure to compete on the biggest of stages.”
Internally, the Armanino partner group was unanimous in its support for the deal — and in its insistence on only selling a minority stake.
“We’ve had transparent discussions at the leadership level around not only adding an outside investor, but we knew very early on that a minority investment was the best path forward for us, and we were very excited that there was unanimous support from the entire partnership group around that decision,” Armanino said. “This structure is also going to allow the long-term owners and partners of Armanino to maintain full control over our day-to-day operations, and the proud culture that we’ve built.”
“No other firm in the Top 25 has a structure like this, and I think that’s pretty significant,” he added.
Capital plans
The goal of the deal is to give Armanino the capital it needs to take itself to a new level of growth while also addressing some of the most pressing challenges in accounting: investing in technology, pursuing inorganic growth through M&A, and attracting and retaining talent.
The firm has always been tech-forward, and recently has been a major pioneer in artificial intelligence.
“The capital will enable us to fast-track our investments in advanced technology solutions, particularly AI,” said Matt Armanino. “We’ve seen growing desire from our clients to deploy real applications for AI solutions. And while we’ve been at the forefront of automation and AI since the early days, with the development of our AI Lab a few years ago, innovative AI-driven solutions that address our clients’ most urgent challenges remain a top priority for us.”
Beyond technology investments, the firm plans to continue its aggressive M&A strategy, which has brought on 19 acquisitions since 2019.
“Those transactions have allowed us to expand our capabilities and enter into new markets and drive greater value to our clients,” said Armanino. “And we think we can accelerate that now with this capital structure that we have.”
All that M&A has brought the firm a lot of fresh talent, but no firm these days has enough, and that’s a third purpose for the new capital.
“We think there remains a lot of ripe talent across the country out there,” he said. “I think the capital will support our efforts to attract, retain, develop and reward top talent by investing in people who drive our entrepreneurial spirit here at the firm.”
The deal will allow the firm to reward top talent, for instance through equity plans that allow them to extend the firm’s ownership culture beyond the partner group that it has traditionally been restricted to.
“In many cases, for our most senior employees today, there’s not a natural mechanism to align their effort to the success of the firm to the growth of our enterprise value and how that ultimately rewards them,” explained Armanino. “And we are very excited that we have new mechanisms, and plans in place, that are going to allow us to do that very well, and effectively push down the benefits of ownership and that ownership culture to our most senior employees.”
“Finally,” he added, “speaking to our innovative culture — and that’s a big part of our brand — the capital will empower us to say ‘Yes’ more frequently to great ideas, to entrepreneurial ideas and initiatives that truly make a difference for our clients and set us apart as a leader in this industry.”
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