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.
Pamela Au/wingedwolf – Fotolia
The Internal Revenue Service has released
An “automatic change” is a change in method of accounting for which the taxpayer is eligible under Section 5.01(1) of
The 430-plus pages of changes cover: gross income, commodity credit loans, trade or business expenses, bad debts, interest expense and amortizable bond premium, depreciation or amortization, research or experimental expenditures, elective expensing provisions, computer software expenditures, start-up expenditures and organizational fees, capital expenditures, and uniform capitalization methods.
Changes also cover losses, expenses and interest in transactions between related taxpayers; deferred compensation; cash-to-accrual methods of accounting; taxable years of inclusion; discounted obligations; prepaid subscription income; long-term contracts; taxable years incurred; rent; inventories (including LIFO inventories); mark-to-market accounting; bank reserves for bad debts; insurance companies; discounted unpaid losses; and REMICs.
Examples are given for many of the changes.
Rev. Proc. 2025-23 was slated to be in IRB 2025-24 dated June 9.
Many CPA firms struggle to raise pricing and remove problematic clients. It may get brushed off as “no big deal,” but ignoring pricing and client mix harms the firm in significant ways: less revenue equals less growth and lower ability to pay staff well, lower profits for partners or capital to reinvest in the business, and unwieldy clients who burn out staff and partners alike for a paltry financial return.
After helping many firms in this area during strategic planning and retreats, here’s what I’ve seen the successful ones do.
Don’t shock the system
When we talk about increasing prices, many partners imagine an abrupt, across-the-board 20% fee increase and clients pouring out the doors as a result. I’ve seen firms be very successful using an incremental and client-specific approach. Segment your client list by service line and total fees. Consider the 80/20 rule: how many clients do you need to generate 80% of your revenue? It’s likely not as many as you think. Then have each partner recommend appropriate pricing adjustments for each client. If there’s a big gap between current fees and market rates, it may take a few years to get there (unless you’re OK with the possibility of losing them, which sometimes is advisable). Some clients may need only a 5% bump to get to market; some may need 150%. Do what makes sense for each client and total firm revenue.
Communication is the key
Often, partners relax once they grasp the reasons why pricing or client acceptance criteria need to improve: staffing crisis, wage increases, tech costs going up, inflation, undercharged for years, not enough hours to serve all the clients well, etc. Pull a Wall Street Journal article on any given day about the accounting industry, and you’ll have another reason your firm needs to evolve. Then explain that to your clients with empathy and sincerity. Almost all of them will understand.
You can keep some personal favorite clients
Many partners get skittish about changing pricing and client acceptance because they have a stable of long-time clients who have been way under market for years but have strong sentimental value. Whoever they are for you, you are allowed to keep them on one condition: accept that they may not be 20% (or some other meaningful amount) of your total book of business. I have great hope for the accounting industry because of the great care I’ve seen partners take of their clients. We don’t want to diminish that. We do want to run a sustainable business.
You’re worth it and so is your staff
Firms have reported gleeful results when they let their staff give input on clients. The staff know who the ungrateful, late, messy clients are. They also know the appreciative, clean, fun-to-work-with clients. It’s uncanny how some of the lowest-profit clients often fall into the first category. Economics aside, when you protect your staff from problematic clients through higher pricing (enough budget to do quality work) or firing clients who can’t work well with the firm, you send a strong message that you care. The same goes for partners. Firms that have a lot of A and B clients and aren’t afraid to shape up or ship out their lowest clients seem to have much higher enjoyment and peace of mind at work. Your team works hard for your clients, and the reciprocity of fair fees and behavior from them is only right.
If you want to join the firms that are finding success in fees and client mix, here are four ways to start:
1. Grade your clients: Rank them A through F, based on criteria like total fees, realization, growth potential, and how fun or hard it is to work with them.
2. Segment the list: Analyze your now graded client list. Who needs more attention? Who needs to get off the bus?
3. Make an action plan that is specific to each client: Granularity is your friend. By partner, by client, make next steps to improve fees or client behavior to meet current standards.
4. Keep meeting about it regularly: This is the most important step! Just making a list doesn’t count. Partners who regularly meet and act on their lists make big progress.
I know the journey can be uncomfortable, but firms on the other side prove it’s well worth it. Good luck!
Senate Majority Leader John Thune said Republicans in his chamber expect to deliver on President Donald Trump’s campaign promises to exempt tips, overtime pay, Social Security and auto loan interest from taxes.
“I think that the president as you know campaigned hard on no tax on tips, no tax on overtime, Social Security, interest on car loans — those were all things that are priorities for the administration and they were addressed in the House bill and I expect they will be in the Senate as well,” Thune told reporters.
The House bill, in lieu of a direct tax cut on Social Security, which would violate Senate budget rules, provided a $4,000 bonus deduction for per taxpayer age 65 and older with incomes up to $75,000 for individuals and $150,000 for married couples. The House provisions on tips, overtime, the elderly and car loans would all expire in 2029.
Thune’s comments come as Senate negotiators tweak the House-passed version of Trump’s giant tax package ahead of a self-imposed deadline to pass the measure before the July 4th holiday, with Thune saying Tuesday the Senate is very close to finishing its draft of the legislation.
Earlier Tuesday, House Ways and Means Chair Jason Smith, whose committee is responsible for tax legislation, warned that any Senate version of the tax package that doesn’t include the tips and overtime breaks would be “dead on arrival” in the House.
Several Republican senators including Thom Tillis of North Carolina and Lindsey Graham of South Carolina have expressed skepticism about the cost and economic wisdom of including the tax exemptions on tips and overtime pay. Senators have instead called for funds to be used to make temporary business tax breaks permanent.
Such a change would be a “no go” for House Republicans, Smith told Bloomberg TV.
The Senate is now considering the massive tax and spending package after it passed the House by a single vote last month. If the Senate changes the legislation, the House must approve the revised version.
Senator Josh Hawley, a populist Republican, said Trump told him Tuesday morning that tax-exempt tips and overtime, as well as a tax cut for the elderly, are the most important provisions in the bill.
House Speaker Mike Johnson also has urged senators not to remove or scale back provisions in the legislation that exempt tips and overtime pay from income tax through 2028.
“This is an important promise for us to keep,” Johnson told reporters earlier Tuesday.
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