If you’re in your 50s or early 60s and thinking seriously about retirement, you’ve probably already started looking at your finances with a sharper eye. Maybe you’re also thinking about your children and grandchildren—how you can help them now instead of leaving it all in a will.
Good news: there are a few creative ways to reduce your taxable income while supporting your family in meaningful ways. And no, it doesn’t involve writing big checks or giving up control of your assets. Let’s look at some outside-the-box strategies that combine generosity with smart financial planning.
1. Start a Family Business—and Put the Grandkids on Payroll
Launching a small business—whether it’s consulting, crafting, tutoring, or even managing rental property—can open the door to tax deductions and family involvement.
How it works:
- The IRS allows you to deduct ordinary and necessary business expenses. If you hire your grandchildren for legitimate work (like stuffing envelopes, handling social media, or helping with inventory), their wages are deductible business expenses.
- If your grandkids are under 18 and you’re a sole proprietor, you don’t have to withhold Social Security or Medicare taxes on their wages.
- Their income is likely low enough to fall below the standard deduction, meaning they might not owe taxes at all.
Bonus: You’re teaching them work ethic, money skills, and getting to spend time together.
2. Start a 529 Plan and Bunch Contributions
Instead of gifting cash directly, consider a 529 college savings plan for grandchildren.
How it works:
- Contributions are not federally deductible, but many states offer tax breaks for residents (see more below).
- You can “superfund” a 529 by contributing five years’ worth of the annual exclusion amount at once (currently $18,000 per year, or $90,000 over five years per donor).
- The funds grow tax-free and can be withdrawn tax-free for education expenses—or even rolled into a Roth IRA for the beneficiary under new rules.
States Offering Tax Benefits for 529 Plan Contributions
These states offer state income tax deductions or credits, but only if you contribute to their state-sponsored 529 plan:
- New York: Up to $10,000 deduction for married couples filing jointly.
- Illinois: Up to $20,000 deduction for married couples filing jointly.
- Virginia: Up to $4,000 deduction per account per year, with unlimited carryforward.
- South Carolina: Full amount of contribution deductible.
States Offering Tax Parity (Deductions for Any State’s 529 Plan)
These states give you state income tax benefits regardless of which state’s 529 plan you use:
- Arizona: Up to $4,000 deduction for married couples filing jointly.
- Kansas: Up to $6,000 deduction for married couples filing jointly.
- Minnesota: Offers a deduction or credit, depending on income.
- Missouri: Up to $16,000 deduction for married couples filing jointly.
- Montana: Up to $6,000 deduction for married couples filing jointly.
- Ohio: Up to $4,000 deduction per beneficiary, with unlimited carryforward.
- Pennsylvania: Up to $30,000 deduction per beneficiary for married couples filing jointly.
3. Rent Your Home to Your Business
If you’ve started that family business and occasionally use your home for meetings, events, or filming content, you might be able to rent your personal residence to your business.
How it works:
- Under the “Augusta Rule,” you can rent your home to your business for up to 14 days a year, and the income is not taxable to you.
- The business deducts the rental cost as an expense, lowering your business’s taxable income.
- Keep records and charge a reasonable market rate based on comparable rental space.
4. Gift Appreciated Assets, Not Cash
If you own stocks, real estate, or other investments that have gained value, consider gifting those directly instead of selling and giving cash.
How it works:
- You avoid paying capital gains tax on the appreciation.
- The recipient gets the asset with your cost basis, so they may pay less in tax if they’re in a lower tax bracket when they sell.
- You reduce your taxable estate without using up the lifetime exemption.
Being generous with your family doesn’t have to wait until you’re gone—and it doesn’t have to cost you extra at tax time, either. With a little creativity and some good planning, you can reduce your taxable income now while helping your children and grandchildren thrive.
Of course, it’s smart to loop in a tax professional or financial advisor to make sure your plan fits your full financial picture.
By Admin –
