Question: Troy, a self-employed landscaper, files a Schedule C every year. He has one daughter, Sally, who is sixteen and works for him during the summer helping with various landscaping projects. In the past, Troy has issued Sally a W-2 for her work and has been told that her wages are exempt from FICA and FUTA.

This year, Troy converted to an S corporation; this was the only business change. He plans to continue hiring his daughter during the summer and paying her wages, reportable on a W-2 like he has always done. Can he continue paying his daughter wages, exempt from FICA and FUTA?

Answer: No. Children employed by a parent-owned business are exempt from FICA until age 18 and exempt from FUTA until age 21. This exemption applies only to Schedule C, sole proprietorships. It does not apply to a child employed by an incorporated business owned by the parent or by a partnership that has partners who are not parents of the child.

Preparers with military clients know there are several tax provisions they need to be aware of to correctly prepare their returns. The deadline to complete most 2020 returns for military taxpayers and their spouses is May 17, 2021. If your clients need more time to file their taxes, they can request an extension before May 17. An extension of time to file doesn’t mean taxpayer have an extension of time to pay any tax due. Taxpayers must estimate their tax due and pay it by the regular due date for the return unless they qualify for an extension, which allows for a delay in payment of income taxes. Generally, with the filing extension, your client will have until Oct. 15, 2021, to file.

Tax provisions to note for military clients include:

1. Pay for services in a combat zone does not need to be included as taxable income.
2. Taxpayers with unreimbursed travel and lodging expenses for travel over 100 miles away from home in connection with the performance of services as a member of the reserves, can deduct unreimbursed travel expenses, even if they don’t itemize.
3. Certain uniform cleaning and maintenance is tax deductible, as well as the cost of uniforms that can’t be worn off duty, to the extent the cost exceeds allowances received.
4. Taxpayers who move for military reasons can retain tax residency in their home state.
5. Extra time is allowed to file a return if your client is a U.S. citizen or resident alien who is stationed abroad or in a combat zone and certain situations are met.

There are also special considerations for veterans. There may still be time for some veterans to claim their refund for disability severance payments they received after 1991 and claimed as income. Disabled vets may be eligible to claim a federal tax refund based on: an increase in the veteran’s percentage of disability from the Department of Veterans Affairs; or the combat-disabled veteran who applied for, and was granted, combat-related special compensation after an award from concurrent retirement and disability.

There are more tax provisions and laws for taxpayers who are members of the military, including their spouses and families. Join us for our upcoming webinar, Preparing Taxes for a Military Taxpayer, on May 18 and May 19. This webinar will get into the details of these provisions and will help the tax preparer evaluate domicile options for military taxpayers and discuss deadline extensions, which could come in handy due to the fallout related to COVID-19. If you can’t make it to the live broadcast, the webinar is available on-demand.

Question: Before the 2020 tax year’s filing deadline, you filed the tax return of Jiang and Kwan that included unemployment compensation and used MFJ filing status. Still, before the 2020 tax year filing deadline, they have come back to you because of new guidance regarding the portion of unemployment income being nontaxable income and ask you to change their filing status to MFS because it is overall more beneficial to them. Can they change their filing status from MFJ to MFS?

Answer: While Jiang and Kwan cannot file an amended return after the return’s filing time has expired to change from MFJ to MFS (§1.6013-1(a)(1)), they may file a superseding return before the 2020 tax year filing deadline to make the change. When a superseding return is filed on or before the original tax return filing due date, it corrects the initial return filed instead of the IRS viewing it as an amended return. The IRS treats the superseding return’s corrections as modifying the original return filed. Thus, if it is determined that the filing status of MFS is better than MFJ overall for the couple after the 2020 MFJ return was filed, then filing a superseding return before the filing deadline may be a useful option.