Summertime, and the Tax Savings Are Easy.

• Author: SCHNEPPER, JEFF A.
• Position: Brief Article

SUMMER is coming, bringing heat and humidity, but don't sweat it. You're going to be cool with summertime tax deductions to chill the IRS. Next April 15 won't be like getting a house call from Dr. Kevorkian. Here's how it works:

Put 'em to work. Your kids are home from school over the summer. Put them to work! The new rules for 2000 allow each of your children to earn, tax free, as much as $4,400. They can earn another $2,000, put it in an IRA, and still pay zero tax. That's a total of $6,400 in tax-free income. (Although I suspect, at their ages, it would be better to place the $2,000 in a non-deductible Roth IRA.)

As long as you provide more than half their support, you can still claim them as your dependents. If they spend all their earnings (big surprise!), you can gift them the dollars necessary to fund their IRAs.

That's the good news if your kids work for someone else. If they work for you, the news gets even better. Not only are the dollars going to the kids tax-free, but, if they work for your own business, they become tax-deductible to you as well. Moreover, if you are not incorporated and your offspring are under 18, no Social Security, Medicare, and (normally) unemployment or disability taxes have to be paid.

If you hire two children, 16 and 17, to work for your unincorporated business, and pay each $6,400, they face zero tax and you get a deduction of $12,800. This deduction reduces your income for income tax and Social Security/Medicare purposes as well. If you are in the 28% bracket, with a 15.3% Social Security/Medicare rate, that saves you $5,542 in Federal taxes alone.

How old do your kids have to be before they can go to work? Normally, state labor laws want them to be at least 14, but, if they work for you, the IRS has allowed deductions for children as young as seven. Just make sure the wages you pay them are reasonable in relation to their ages and what they do.

Send 'em to camp. If you can't put them to work, at least get them out of the house. If both you and your spouse work (or if one is disabled or going to school), you can qualify for the child care credit. Your offspring must be under 13, but the credit can be as much as 30% of what you spend on "child care," up to $2,400, for up to two kids. The minimum credit is 20%, no matter how much income you earn. That means that you can get a direct reduction in your tax bill of as much as $1,440 each year (two children at $2,400 = $4,800; $4,800 x .30 = $1,440; the...