Ask the tax adviser
fees for administering an estate and how to hire minor children
for a family day-care business.
Estate legal fees
Dear Tax Talk:
I am the executor of my father's estate and paid over $10,000 in
legal fees. Is this deductible from my federal taxes?
Dear Black Ram:
Legal fees paid in connection with the settlement of an estate are
deductible either by the estate on its Form
1041 or by the residual beneficiary or beneficiaries on Form
A, line 22, if the estate is not required to file a tax return.
Unfortunately, the executor can only claim the
deduction if he is a residual beneficiary. A residual beneficiary
is the one who gets the remainder of the estate after specific bequests
Hiring your kids
Dear Tax Talk:
My son and his wife operate a group home day-care center. They have
heard that they could pay "wages" to their minor children
(ages 4 and 6) for chores performed and that these wages could be
deducted as a business expense. Anything to this?
You heard right. Wages paid to minor children by an unincorporated
parent's business are not subject to employment taxes (FICA, Medicare
or Federal Unemployment Tax) and are deductible by the parent on
C. You need to check the
rules out for your state's unemployment tax.
Further, a child gets a standard deduction up
to $4,300 or an amount equal to their earned income, whichever is
less. Therefore, two kids wouldn't pay tax on $8,600, which the
parent deducts. Also the wages would qualify the children for IRAs
so that's another $4,000 that could avoid tax. This is a pretty
good deal. And as in all good deals, the IRS would scrutinize the
transaction to make sure it's genuine.
First of all, since your grandchildren are only
4 and 6, you have to be able to justify what is paid to them and
for what duties. You may be able to claim the kids entertain the
day-care children for a certain number of hours each day at an hourly
rate that is reasonable (say $6 to $10 an hour). Keep track of the
hours they work as you would for any other employee. Also, I am
not an expert on labor laws, but make sure you are not violating
any by employing such young children.
Lastly, I believe you would need to report the
kids' wages on Form 941 (Employer's Quarterly Tax Return),
940 (Federal Unemployment Tax Return) and file Forms
in January. Since their wages are exempt, I think you need to indicate
on the forms that the payments are to minor children of the employer.
And don't forget to do income tax returns for
-- Posted Sept.