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 Financial Accounting Standards Board issued a
U.S. GAAP currently doesn’t provide specific authoritative guidance about the recognition, measurement, and presentation of a grant received by a business entity from a government. Instead, many businesses currently apply the International Financial Reporting Standards Foundation’s International Accounting Standard 20, Accounting for Government Grants and Disclosure of Government Assistance, by analogy, at least in part, to account for government grants.
In 2022 FASB issued an Invitation to Comment, Accounting for Government Grants by Business Entities—Potential Incorporation of IAS 20, Accounting for Government Grants and Disclosure of Government Assistance, into GAAP. In response, most of FASB’s stakeholders supported leveraging the guidance in IAS 20 to develop accounting guidance for government grants in GAAP, believing it would reduce diversity in practice because entities would apply the guidance instead of analogizing to it or other guidance, thus narrowing the variability in accounting for government grants.
Patrick Dorsman/Financial Accounting Foundation
The proposed ASU would leverage the guidance in IAS 20 with targeted improvements to establish guidance on how to recognize, measure, and present a government grant including (1) a grant related to an asset and (2) a grant related to income. It also would require, consistent with current disclosure requirements, disclosure about the nature of the government grant received, the accounting policies used to account for the grant, and significant terms and conditions of the grant, among others.
FASB is asking for comments on the
“It will not be a cut and paste of IAS 20,” said FASB technical director Jackson Day during a session at Financial Executives International’s Current Financial Reporting Insights conference last week. “First of all, the scope is going to be a little bit different, probably a little bit more narrow. Second of all, the threshold of recognizing a government grant will be based on ‘probable,’ and ‘probable’ as we think of it in U.S. GAAP terms. We’re also going to do some work to make clarifications, etc. There is a little bit different thinking around the government grants for assets. There will be a deferred income approach or a cost accumulation approach that you can pick. And finally, there will be different disclosures because the disclosures will be based on what the board had previously issued, but it does leverage IAS 20. A few other things it does as far as reducing diversity. Most people analogized IAS 20. That was our anecdotal findings. But what does that mean? How exactly do they do that? This will set forth the specifics. It will also eliminate from the population those that were analogizing to ASC 450 or 958, because there were a few of those too. So it will go a long way in reducing diversity. It will also head down a model that will be generally internationally converged, which we still think about. We still collaborate with the staff [of the International Accounting Standards Board]. We don’t have any joint projects, but we still do our best when it makes sense to align on projects.”
PwC made a $1.5 million investment to Bryant University, in Smithfield, Rhode Island, to fund the launch of the PwC AI in Accounting Fellowship.
The experiential learning program allows undergraduate students to explore AI’s impact in accounting by way of engaging in research with faculty, corporate-sponsored projects and professional development that blends traditional accounting principles with AI-driven tools and platforms.
The first cohort of PwC AI in Accounting Fellows will be awarded to members of the Bryant Honors Program planning to study accounting. The fellowship funds can be applied to various educational resources, including conference fees, specialized data sheets, software and travel.
Krisztian Bocsi/Bloomberg
“Aligned with our Vision 2030 strategic plan and our commitment to experiential learning and academic excellence, the fellowship also builds upon PwC’s longstanding relationship with Bryant University,” Bryant University president Ross Gittell said in a statement. “This strong partnership supports institutional objectives and includes the annual PwC Accounting Careers Leadership Institute for rising high school seniors, the PwC Endowed Scholarship Fund, the PwC Book Fund, and the PwC Center for Diversity and Inclusion.”
Bob Calabro, a PwC US partner and 1988 Bryant University alumnus and trustee, helped lead the development of the program.
“We are excited to introduce students to the many opportunities available to them in the accounting field and to prepare them to make the most of those opportunities, This program further illustrates the strong relationship between PwC and Bryant University, where so many of our partners and staff began their career journey in accounting” Calabro said in a statement.
“Bryant’s Accounting faculty are excited to work with our PwC AI in Accounting Fellows to help them develop impactful research projects and create important experiential learning opportunities,” professor Daniel Ames, chair of Bryant’s accounting department, said in a statement. “This program provides an invaluable opportunity for students to apply AI concepts to real-world accounting, shaping their educational journey in significant ways.”
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