Tip of the Month for September 2002
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Sources of Tax-Free Income
Home Rentals of up to 14 days are tax free...
If you rent out your home or second home for no more than 14 days, you don’t have to report to the IRS the rent you receive. Example: If a popular tournament, race or other attraction is scheduled near you, consider renting your home to an attendee and using the money you receive tax-free to pay for your own vacation.
Gain on the sale of a home...
... is tax free up to $250,000 ($500,000 on a joint return) when you have used the home as your main residence for at least two of the prior five years. You can make such a tax-free sale once every two years. If you own other residences (such as vacation or investment properties) in addition to your principal residence, you can move into them for two years at a time to take tax-free gain on them, too, when selling them.
Children’s salaries paid by a family business...
... effectively let the business take a portion of its income tax free. The business gets to deduct the salary payments at its high tax rate, while a child can earn up to $4,700 tax free in 2002-plus another $6,000 taxable at only 10%, and additional income over $6,000 to $27,950 taxable at only 15%. When a child under age 18 is paid by a parent’s unincorporated business, the payments are also free of Social Security and Medicare taxes. And the Tax Court has allowed deductions for reasonable wages paid to children as young as seven.
If you rent out your home or second home for no more than 14 days, you don’t have to report to the IRS the rent you receive. Example: If a popular tournament, race or other attraction is scheduled near you, consider renting your home to an attendee and using the money you receive tax-free to pay for your own vacation.
Gain on the sale of a home...
... is tax free up to $250,000 ($500,000 on a joint return) when you have used the home as your main residence for at least two of the prior five years. You can make such a tax-free sale once every two years. If you own other residences (such as vacation or investment properties) in addition to your principal residence, you can move into them for two years at a time to take tax-free gain on them, too, when selling them.
Children’s salaries paid by a family business...
... effectively let the business take a portion of its income tax free. The business gets to deduct the salary payments at its high tax rate, while a child can earn up to $4,700 tax free in 2002-plus another $6,000 taxable at only 10%, and additional income over $6,000 to $27,950 taxable at only 15%. When a child under age 18 is paid by a parent’s unincorporated business, the payments are also free of Social Security and Medicare taxes. And the Tax Court has allowed deductions for reasonable wages paid to children as young as seven.
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