 Tax
write-offs for 19-year-old son
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 Dear
Tax Talk,
My son is 19 and lives at home. He is going to make about $65,000
this year and the amount of taxes he has to pay is driving him crazy.
He also has about $10,000 in a savings account getting 4.4 percent
interest. He is thinking about buying a house for the deductions
but does not want to put everything into a house at his age and
not be able to enjoy life. What are his options to keep more of
his money for himself rather than giving it all away to the government?
-- Cynthia
 Dear
Cynthia,
At age 19, the amount of money he's making should make him proud, not crazy. Unfortunately he has to share it with his Uncle Sam.
Apparently he likes living at home and doesn't want
to get into a big home for himself. But if he wants to buy a property
(such as a small apartment building), the tax write-offs from renting
it out could give him some benefit. Obviously, nobody buys a rental
property to lose money every month, but investors hope that the
current losses are more than offset by the property's appreciation.
In addition, investors get to write off the cost of the property.
The appreciation and the cost write-off are later taxed at preferential
rates while the current write-offs might be more valuable.
Your son might also want to consider retirement savings. The downside,
of course, is that the money is unavailable without penalty until
he reaches almost 60. However, he could borrow or withdraw from
different types of plans to buy a home in the future. For example,
a work-sponsored 401(k) plan could allow (depending
on the terms of the plan) the employee to borrow up to half the
account balance. An IRA allows a penalty-free withdrawal of up to
$10,000 to buy a first home. Since he already has savings, he can
transfer this money to an IRA and get a tax write-off and later
draw on the money for a home. Any tax on the later withdrawal will
be ameliorated by the mortgage interest and tax deduction from homeownership.
Unfortunately he's not going to get a tax benefit from enjoying life -- unless he can turn that into a business.
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