2024 Last-Minute Tax Strategies for Marriage, Kids, and Family
2024 Last-Minute Tax Strategies for Marriage, Kids, and Family
Introduction
As the end of the year nears, there are some important last-minute tax strategies married couples, families with children, and those giving money to relatives should consider before December 31st. Little things in your life or the timing of financial decisions can add to big tax savings.
In this article, we will look at five tax-savvy moves regarding marital status, using underage children, homeownership, and gifting money. If you have the time to understand these key strategies and act before the new year, you could put thousands of extra dollars in your pocket.
Put Your Children on Your Business Payroll
If you operate a sole proprietorship, partnership, or S-corporation, consider putting any children under 18 on your company's payroll this year.
Paying your child a reasonable wage for work done at your business and issuing them a W-2 provides major tax benefits:
You can deduct their wages as a business expense to lower your taxable income. This deduction is not subject to payroll taxes.
Your child's income is exempt from federal payroll taxes since they are under 18.
With the standard deduction, your child can earn up to $14,600 tax-free.
Any income beyond that can go into a Roth IRA for tax-advantaged investing.
Finalize Your Divorce after December 31st
If you are planning to get divorced, consider the timing for finalizing legal paperwork. Your marital status on December 31st determines whether you file taxes as married or single for the entire year.
In most cases, the joint return allows you to pay less tax overall compared to filing separately. Delaying divorce proceedings until next year could provide substantial savings and allow you to split certain deductions.
This strategy does not apply if you have a prenuptial agreement that addresses tax filings or maintaining finances separately. Running the numbers both ways in your tax return can clarify which approach is best.
Maintain Single Homeowner Status for Higher Mortgage Interest Deductions
Unmarried couples purchasing a home together should carefully weigh the tax implications of getting married.
If you bought your home before December 15, 2017, getting married can reduce total mortgage interest deductions. As single homebuyers, you each qualify for the $1 million limit rather than the $750,000 limit for married joint filers.
Post-2017 purchase dates use the reduced $750,000 limit, so two single buyers would have a combined $1.5 million limit versus $750,000 while married.
Get Married by December 31st
While marriage can complicate homeownership deductions, getting married before year-end confers advantages like:
Claiming Joint Credits and Deductions
Taking twice as much credit for child and dependent care
Qualifying for increased deductions like student loan interest
Avoiding higher taxes that apply to separate returns
Income Splitting Opportunities
Balancing your respective incomes to reduce overall rate
Offsetting capital gains and losses between spouses
As with divorce, run through different filing scenarios to see whether marriage decreases your tax liability for 2024.
Use the 0% Tax Bracket for Gifting Appreciated Assets
Are you planning to gift money to parents or other relatives in lower tax brackets? Consider transferring appreciated investments like stocks instead of cash.
If beneficiaries sell gifted assets that have untaxed capital gains, they can take advantage of the 0% capital gains rate applied to their lower incomes. You avoid tax that would apply if you sold the same assets yourself.
Gifting appreciated securities can be far more tax-efficient than gifting cash. For example, gifting $20,000 in stock bought for $2,000 costs you nothing in taxes while letting recipients enjoy full value.
Conclusion
By timing things well and knowing some tax rules, families and individuals can realize significant savings. Other last-minute strategies that can have a big impact include employing your minor children, handling alimony correctly, maximizing homeownership deductions, and gifting assets to lower-income recipients, all of which you should discuss with your tax advisor before December 31st.