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“Clueless” star Alicia Silverstone said she never buys anything new if she can help it. “We are actual opposites,” she said of Cher Horowitz, the character she made famous.
Excessive online shopping, and returning, exacts a hefty environmental toll.
More consumers are now embracing recommerce, driven by a good deal and a desire to shop in more sustainable ways.

Alicia Silverstone stars in the 1995 film “Clueless.”
Stringer | Array | Reuters

Her character Cher Horowitz may have been best known for her shopping habit, but in real life, “Clueless” star Alicia Silverstone said she never buys retail if she can help it.
“Cher, she is such a consumer. We are actual opposites,” the sustainability advocate and actor told CNBC. “My mantra with purchasing anything: It needs to be used first.”

Silverstone adopted a more sustainable approach to consumption years ago.
“I’ve been fighting the good fight to encourage people to buy used and make it sound cool,” she said.
More consumers are catching on.
“I do think people are getting more concerned about the planet, so they are interested in buying preloved,” said Silverstone, who partnered with eBay to promote its first Recommerce Day, on May 21. “We are not just screaming into a dark hole anymore.”

Online shopping’s hefty toll on the environment

With the explosion of online shopping during the pandemic, a surge in returns seemed like a small price for everyone to pay.

Then, as customers got increasingly comfortable with their buying and returning habits, more shoppers began ordering products they never intended to keep. Nearly two-thirds of consumers now buy multiple sizes or colors, some of which they then send back, a practice known as “bracketing.”
The return rate in 2023 was about 15% of total U.S. retail sales, or $743 billion in returned goods, according to the National Retail Federation’s most recent data. For online sales, the numbers are even higher, with a return rate closer to 18%, or $247 billion of merchandise purchased online returned. 

But all of that back and forth comes at a hefty price.
In fact, processing a return costs retailers an average of 30% of an item’s original price, according to returns solution company Optoro.
“The bedroom has become the new dressing room,” said Amena Ali, Optoro’s CEO. “It’s Pandora’s box, because once you go there, you can’t get back.”
For their part, companies have been quietly attempting to keep returns in check.
Last year, 81% of U.S. retailers rolled out stricter return policies, including shortening the return window and charging a return or restocking fee, according to a report from return management company Happy Returns. Others, including Amazon and Target, have simply told shoppers to “keep it.”
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“Charging for returns is one way to cover a portion of that cost,” Erin Halka, senior director at Blue Yonder, a supply chain management company, told CNBC in 2022. “It also can deter customers from overbuying, since at least 10% of returned goods cannot be resold.”   
But returns aren’t just an issue for retailers’ bottom line.
“Often returns do not end up back on the shelf,” and that also causes a problem for retailers struggling to enhance sustainability, according to Spencer Kieboom, founder and CEO of Pollen Returns, a return management company. 
Also referred to as reverse logistics, sending products back to be repackaged, restocked and resold — sometimes overseas — is “like playing a tape in reverse,” Ali said.
And it generates even more carbon emissions to get those items back in circulation, if they even make it that far. In some cases, returned goods are sent straight to landfills, while only 54% of all packaging is recycled, according to the U.S. Environmental Protection Agency.
Last year’s returns created 8.4 billion pounds of landfill waste, according to Optoro.
“People are perhaps more aware of fast fashion in terms of waste, but the same adage applies to really everything you are returning,” Ali said.

Out of a returns problem comes a liquidation boom

Where there is a returns problem, there is also an opportunity, especially for those in the liquidation business.
“Most retailers do not restock returns. It is way too capital and labor intensive for them to do so,” said Shraysi Tandon, co-founder and CEO of Kidsy, an e-commerce company that resells children’s product overstock, open-box and returned goods. 
However, “returns is an issue they want to fix,” she added, which is why some retailers now sell returns to businesses such as Kidsy that buy products in bulk. “These partnerships are beneficial.”

Consumers can also benefit, while cutting down on emissions and landfill waste.
The environmental advantages now rank among the top reasons shoppers have embraced so-called recommerce, second only to saving money, according to a recent report by eBay. As more shoppers jump on board, driven by a pursuit of value and a desire to shop in more sustainable ways, the stigma around buying secondhand is all but gone.
Over the next five years, recommerce is projected to grow more than four times faster than the broader retail market and hit $276 billion by 2028, a recommerce report by OfferUp found.
While the industry is dominated by clothing resale, 85% of Americans now buy or sell secondhand products, OfferUp found, including electronics, furniture, home goods and sporting equipment, as well as apparel. Children’s goods are a natural fit, Tandon said: “Parents have been engaged in the hand-me-down culture long before a formal marketplace existed.”
Silverstone said that’s how her mom raised her, even if it meant wearing her older brother’s “itchy sweaters.” And that’s how she outfits her son, Bear, who prefers “hip shoes.”
“If I get it used, I feel better about it,” she said of buying the latest hot sneakers.
Even Cher came around to the idea in the end of the movie, Silverstone added, when she led a donation drive at her school. “She has a big heart, so she learned there’s another way.”
In this new series, CNBC will examine what climate change means for your money, from retirement savings to insurance costs to career outlook.
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Cathie Wood’s ARK Invest has taken a stake in Elon Musk’s startup xAI as she deepens her big bet on artificial intelligence.
The fund has invested in nearly 50 companies, most of which are private.
The xAI startup is not the only Musk-led company Wood’s venture fund bets on.

Catherine Wood, chief executive officer of ARK Investment Management LLC, speaks during the Bitcoin 2022 conference in Miami, Florida, U.S., on Thursday, April 7, 2022.
Eva Marie Uzcategui | Bloomberg | Getty Images

Cathie Wood’s ARK Invest has taken a stake in Elon Musk’s startup xAI as she deepens her big bet on artificial intelligence.
ARK Venture Fund has invested in xAI as of Sunday, the St. Petersburg, Florida-based asset manager said in an email to clients Tuesday evening. The fund also invests in OpenAI, the popular player behind ChatGPT, as well as other companies in the industry, such as Figure AI and Shield AI.

The xAI startup is also not the only Musk-led company Wood’s venture fund bets on. The firm has also purchased stakes in Musk’s space company SpaceX and social media firm X Corp., formerly known as Twitter.
The venture fund, launched in September 2022, targets smaller investors who can access the venture capital market through it with as little as $500.
The fund has invested in nearly 50 companies, most of which are private. It comes with a hefty management fee of 2.75%.
Musk founded xAI in March 2023 as a challenger to Microsoft-backed OpenAI and Alphabet’s Google. Musk also co-founded OpenAI. It recently raised $6 billion in series B funding, reaching a post-money valuation of $24 billion. The xAI startup is reportedly planning to build a supercomputer to power the next version of its AI chatbot Grok.
The widely followed Wood has been a big AI bull, saying it’s the most important catalyst in every corner of her disruptive innovation strategy.

She has called Tesla, with its robotaxi ambition, “the biggest AI opportunity in the world.” Tesla is her flagship ARK Innovation Fund’s biggest holding, with a weighting of 11.5%.
Wood also said OpenAI is “at the forefront of a Cambrian explosion” in AI capability.

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Delaying Social Security retirement benefits can dramatically increase monthly benefit checks.
Yet many people do not wait to claim benefits, either because they cannot or would prefer not to.
Experts say some preferred reasons that people give for claiming early often don’t hold up under scrutiny.

Alessandro Biascioli | Istock | Getty Images

When it comes to claiming Social Security retirement benefits, experts agree it’s generally best to delay.
Yet many people still claim early — either at the earliest possible age of 62 or before their full retirement age.

Those early claims result in reduced Social Security benefits for life.
To get 100% of the benefits you’ve earned, you need to wait until full retirement age — between age 66 and 67, depending on your date of birth.
To get the highest benefit, retirees need to wait to claim until age 70.
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Understandably, some people cannot delay — either due to poor health or financial circumstances.

Yet research also shows many people claim early because they are worried about the program’s future, or they mistakenly feel that can help them get the most of their benefits.
In response to a recent CNBC article on why even waiting a few months to claim benefits can help, some readers had a strong reaction.
“It’s already highway robbery,” one reader wrote. “You just don’t want them [beneficiaries] getting their money back, do you?”
Nevertheless, experts maintain waiting to claim is generally a beneficial strategy.
“In the grand scheme of things, delaying claiming Social Security is one of the safest things that you could probably do to protect yourself over time,” said David Blanchett, head of retirement research at PGIM DC Solutions, the global investment management business of Prudential Financial.
Here’s what experts say to the most common arguments for claiming Social Security benefits as soon as possible.

Investing in the market

“If an individual starts collecting at age [62] and puts the benefits in a S&P index fund for 8 years that individual would be way ahead of postponing collection until the age of 70,” another CNBC reader wrote.
With the S&P 500 index up about 26% in the past year, it is tempting to think just investing in a fund that tracks that index can bring in more money than delaying Social Security.
But there are no guarantees returns will be high.
While the markets may go up an average 10% per year, that amounts to just 7% after factoring in inflation, according to Blanchett. For a balanced portfolio of stocks and bonds, a 5% annual return expectation is more reasonable. In some years, the market may fare better and in others it may be worse.

An individual who waits until age 70 to claim Social Security benefits will receive a benefit of about 77% higher than what they would receive at age 62, according to Blanchett’s research. For every year retirees delay from full retirement age, they may get an 8% benefit boost.
To best gauge the trade-off, experts say it’s most accurate to compare delaying Social Security to investing in bonds rather than equities. The advantage of Social Security benefits is that they are adjusted for inflation and pay income for the rest of a beneficiary’s life.
“If I were going to compare Social Security, I should be comparing to bond yields,” said Joe Elsasser, a certified financial planner and founder and president of Covisum, a Social Security claiming software company.
“If I were comparing to bond yields, then delaying Social Security all of a sudden appears much more reasonable,” he said.

Pass on money to heirs

“You can’t pass your Social Security onto heirs while your 401(k) can be, so [it’s] best to take Social Security early and withdraw less from your 401(k),” a CNBC reader wroe.
When planning for how to coordinate Social Security with other assets, it’s important to consider how other factors — such as longevity and taxes — will affect your retirement income.
“People notoriously underestimate their own life expectancy,” Elsasser said.
If you live longer, bigger Social Security benefit checks will help preserve your standard of living, which may help protect other assets in your later years.
For tax efficiency, it generally makes sense to delay Social Security, Elsasser said.
Withdrawals from traditional 401(k) plan accounts may be treated less favorably than Social Security, where only up to 85% of benefits are subject to federal taxes.
Consequently, it helps to have more Social Security income.
“For many people, delaying Social Security can create a much more tax efficient overall retirement, even if it’s not more tax efficient in the short term,” Elsasser said.

Break-even age

“The person who withdraws at 62 will have the same amount of [money] as the person who withdraws at 72 by the time they both reach 78, their expected date of death,” another CNBC reader wrote. “You only make out if [you] beat the odds and live longer.” The reader referenced “72,” but the highest age to wait for bigger benefits is age 70.
Many Social Security claimants tend to focus on a “break-even age” — the point at which they personally would make out the same if they delay or claim early.
To benefit from delayed claiming, they would have to live past their estimated break-even age.
Yet experts say it’s best to base a claiming decision on an individual’s entire financial situation rather than one metric.
Break-even age can be a valuable reference point, Elsasser said.
But claimants also need to consider their own longevity, he said, which may be better than their parents’ due to improved health care and financial resources.
When couples are making a claiming decision, a higher wage earner needs to consider the longevity of both individuals, which often also supports delayed claiming, according to Elsasser.

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There was a 44% year-over-year increase in the number of Roth conversions during the first quarter of 2024, according to Fidelity Investments. 
Roth conversions transfer pretax or nondeductible individual retirement account funds to a Roth IRA, which provides future tax-free growth.
But “it isn’t a slam dunk for everyone,” because of the upfront tax bill, according to Marianela Collado, a certified financial planner, certified public accountant and CEO of Tobias Financial Advisors.

Noam Galai / Noamgalai.com | Moment | Getty Images

Roth individual retirement account conversions are up in 2024 — but there are key things to know before converting funds, experts say.
There was a 44% year-over-year increase in the number of Roth conversions during the first quarter of 2024, according to data from Fidelity Investments. 

Roth conversions transfer pretax or nondeductible individual retirement account funds to a Roth IRA, which provides future tax-free growth.
However, “it isn’t a slam dunk for everyone” because it takes time for tax-free growth to exceed your upfront tax bill, said Marianela Collado, a certified financial planner and CEO of Tobias Financial Advisors in Plantation, Florida.
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Investors need “sufficient assets” outside of retirement accounts to cover the upfront tax bill, warned Collado, who is also a certified public accountant.
You’ll also need to weigh how the additional income during the year of the conversion impacts eligibility for certain tax breaks. Higher earnings can also trigger income-related monthly adjustment amounts, or IRMAA, for Medicare Part B and Part D premiums down the line. (IRMAAs for a given year are typically determined based on your tax return from two years prior.)

Of course, the tax consequences hinge on how much you convert and your tax brackets for the year.

The best time for a Roth conversion

Despite the upfront tax bill, strategic Roth conversions can significantly reduce lifetime taxes or help with legacy goals, said Ashton Lawrence, CFP and director at Mariner Wealth Advisors in Greenville, South Carolina. 
Typically, Roth conversions are attractive during a stock market pullback because you can convert more shares and “you’ll have more tax-free growth on the bounce back up,” Lawrence said.

Roth conversions are also more popular during lower-income years because you’ll owe less upfront taxes on the converted balance. Key opportunities could include after a job layoff or early in retirement before you claim Social Security and start taking so-called required minimum distributions, or RMDs.
Since Congress eliminated the stretch IRA, more investors are eyeing Roth conversions for legacy planning. Since 2020, certain heirs must empty inherited IRAs within a 10-year window, which could mean hefty taxes during “peak earning years,” Lawrence said.
“Nobody likes paying taxes if they don’t need to,” he added.

Older investors can minimize the ‘tax time bomb’

Many baby boomers have a sizable pretax retirement balance because after-tax Roth accounts weren’t available early in their careers, experts say.
In some cases, Roth conversions can help avoid the “tax time bomb” once investors reach the RMD age, according to CFP Wes Battle with Financial Advantage Associates in Rockville, Maryland.  
“Roth conversions are great for multiple reasons,” including tax diversification, possible lower RMDs and inheritance planning, he said.
Some investors also aim to leverage conversions now while there are lower tax brackets. Higher individual tax brackets are scheduled after 2025 once provisions sunset from former President Donald Trump’s 2017 tax overhaul. However, the future of those tax breaks is unclear with pending control of the White House and Congress. More

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Dado Ruvic | Reuters

Semler Scientific, a little-known medical technology company, saw its shares surge Tuesday after it said it has adopted bitcoin as its primary treasury reserve asset, taking a page out of MicroStrategy’s playbook.
The company, which develops products used in the detection of peripheral arterial disease, also announced a purchase of 581 bitcoins for about $40 million, inclusive of fees and expenses.

The stock soared 37% Tuesday, while bitcoin traded lower by about 2%, according to Coin Metrics. Semler, which has a market capitalization of about $210 million, is down more than 30% this year.
“Our bitcoin treasury strategy and purchase of bitcoin underscore our belief that bitcoin is a reliable store of value and a compelling investment,” Eric Semler, Semler’s chairman, said in a statement.

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Semler Scientific surges after announcing bitcoin treasury strategy

“We believe it has unique characteristics as a scarce and finite asset that can serve as a reasonable inflation hedge and safe haven amid global instability,” he added. “Given the gap in value between gold and bitcoin, we believe that bitcoin has the potential to generate outsize returns as it gains increasing acceptance as digital gold.”
The move puts Semler in the same company as MicroStrategy, which began employing an aggressive bitcoin-buying strategy in 2020 and has primarily traded as a proxy for the crypto’s price since then. That stock is up about 163% this year.
MicroStrategy launched as a provider of enterprise software. This February, the company said it would shift its company focus and brand to bitcoin development.

On Tuesday, Semler said the company will continue to focus on its core medical products and services, and that as it continues to generate revenue and free cash flow from sales of its blood flow tests, it will proactively evaluate its use of excess cash.
Tesla and Block are also among the companies that keep some amount of bitcoin on their balance sheets.
Bitcoin is up 60% this year and is trading near its record. Many see adoption by corporate treasuries as a better indicator of intuitional adoption, versus big-name funds holding and potentially trading the cryptocurrency.
The trend has yet to take off in a big way, however, due to regulatory uncertainty and ESG considerations.

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Buy now, pay later plans are the second-most used form of credit payment among U.S. consumers, according to NerdWallet.
“It’s absolutely become popular,” said Sara Rathner, a travel and credit cards expert at NerdWallet.

Woman at home looking at the bills and taxes. 
Hirurg | E+ | Getty Images

As buy now, pay later programs become more common, some shoppers are using this payment structure to make ends meet.
Americans owe $17.5 trillion across credit cards, mortgages, auto loans and other forms of debt, according to the Federal Reserve Bank of New York. About $1.12 trillion of that is on credit cards.

Buy now, pay later, or BNPL, loans often don’t appear on a credit report, serving as a kind of “phantom debt” that’s not reflected in those tallies.
Such short-term financing plans are the second-most used form of credit payment among consumers in the U.S., according to a new report by NerdWallet.
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Credit cards are the most commonly used form of credit, with 66% of respondents using them in the past 12 months. Meanwhile, 25% said they had used BNPL services in the last 12 months. NerdWallet polled 2,061 U.S. adults in early April.
“It’s absolutely become popular,” said Sara Rathner, a travel and credit cards expert at NerdWallet.

BNPL programs often do not require a credit check or an application process, she said, making the use of these plans “so seamless that it’s very easy for consumers to adopt.”
Far fewer consumers, about 10%, had used a cash advance app in the last 12 months, according to the results of the survey. About 6% said they used a payday loan in the last 12 months, NerdWallet found.
As staple items, such as groceries, remain expensive, and borrowing costs are still high, some shoppers are turning to BNPL to pay for essentials, such as personal care items. About 8% of adults in the NerdWallet survey said they used BNPL for necessities. An equal share, 8%, expect to use BNPL for necessities in the coming 12 months.
“As the cost of items that we all need to buy has gone up, it’s become a way to pay for these necessities,” Rathner said. 
While this type of line of credit has become a lifeline for many consumers, some changes to the payment structure are on the horizon.

A ‘consumer-friendly change’

BNPL firms might soon be required to comply with federal protections that cover credit card use in the U.S.
The Consumer Financial Protection Bureau announced on May 22 that such companies must provide customer protections like refunds for returned products, look into merchant disputes and pause payments during such investigations. They must also provide bills with fee disclosures.
“This is a consumer-friendly change,” said Ted Rossman, a credit card analyst at Bankrate.com.
He said that returns and disputes are a “notable pain point” for consumers. About 18% of U.S. adults have had difficulties returning items or getting a refund through a BNPL plan, according to an April Bankrate survey.
Some BNPL plans already have such provisions in place if a consumer needs to make a return.
“It depends on the provider,” Rathner said.

But the BNPL space needs “some consistency and some predictability,” said Matt Schulz, chief credit analyst at LendingTree.
“For many years, buy now, pay later was a bit of a wild, wild West situation,” he said, as one BNPL service might operate differently to another.
Klarna replied to the CFPB announcement with a statement indicating the firm already provides such protections for users.
“To some degree, it may be wise to put some regulation around this,” Sebastian Siemiatkowski, CEO and co-founder of BNPL firm Klarna, said in a May 24 appearance on CNBC’s “Money Movers.”
“But they have to put that in perspective of how good of a product is this for consumers’ best interest versus credit cards,” he added.

‘Nobody should expect that to continue to fall’

While Americans’ credit card debt is down from $1.129 trillion in the fourth quarter of 2023, according to Fed data, it’s still the highest figure since 1999.
“Nobody should expect that to continue to fall going forward into the year,” said LendingTree’s Schulz.
About 44% of credit cardholders carry balances from month to month, Bankrate found. “That’s where we worry,” said Rossman.
Unloading the debt is not easy. Delinquencies are at a new high since late 2011, said Rossman, while 8% of surveyed cardholders have been in debt for a year or more, per Bankrate data.
However, the industry seems to interpret the data as a return to normal, he said. Lenders expected delinquencies to rise because they were “artificially low” during the Covid-19 pandemic due to the federal stimulus income, he said.
But it remains an issue at an individual level, said Rossman.
Low-income households, parents of minor children and younger consumers are bearing the brunt. About 38% of cardholders who make $100,000 a year or more carry a balance, while 56% of cardholders who earn $50,000 or lower carry a balance, Bankrate found.

Parents of minor children are more likely, 61%, to have paid a late fee over the past year than adults without children, 28%, NerdWallet found.
And 12% of Gen Z adults, or those age 18 to 27, used BNPL to pay for necessities in the past 12 months, NerdWallet found. A similar share, 11%, of the cohort expect to do so in the next year.
With more changes to BNPL structures expected to materialize in the coming months, it’s important for consumers to understand the terms before they use such financing, experts say.
“You always want to know what your rights are, and that’s something to study up on before you’ve committed financially,” Rathner said.

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Women and Wealth Events
Your Money

Equal pay day comes later for Asian American, Native Hawaiian or Pacific Islander women.
An AAPI, or AANHPI, woman has to work 15 months to earn what a white man makes in one year, according to the National Women’s Law Center.
Based on today’s wage gap, that will add up to over $1 million in losses over a 40-year career for some groups, according to the center’s analysis.

March 12 is generally considered equal pay day, the mark of just how far into the new year women have to keep working to make what their male counterparts typically made in just the previous year. That difference is known as the gender pay gap.
However, for some groups that date comes much later.

For Asian American, Native Hawaiian and Pacific Islander women, they’ll have to work until April 3 to make the same pay white men earned the year before.
In other words, an AAPI woman has to work 15 months to earn what a white man makes in one year, according to an analysis by the National Women’s Law Center. But that doesn’t tell the whole story, said Sarah Javaid, the NWLC’s research analyst. 
“The discrimination that many Asian women face can be really different depending on their cultural background,” she said.

The wage gap varies among AAPI groups

Although AAPI — also referred to as AANHPI — communities together constitute some of the fastest-growing ethnic groups in the U.S., “systemic barriers to equity, justice and opportunity put the American dream out of reach of many,” according to the Biden administration.
Together, AAPI women are typically paid just 93 cents for every dollar paid to white men, although the pay gap varies significantly for some AAPI communities.

For example, Bhutanese women working full time earn just 49 cents for every dollar white men earn.

Over time, that inequality is magnified. Based on today’s wage gap, an AAPI woman just starting out will lose $187,616 over a 40-year career, according to the NWLC’s analysis.
For some groups the losses are much greater. The lifetime wage gap totals more than $1.4 million for Bhutanese women. Burmese women stand to lose more than $1.2 million because of the wage gap, Nepalese women over $1.1 million, and Hmong, Cambodian, and Laotian women more than $1 million over the course of their careers, the nonprofit advocacy group found.
“That really short-changes them in their entire life,” Javaid said. “When women don’t have that money they can’t invest in wealth-building opportunities,” she added, such as buying a home, paying for their children’s education or saving for retirement.

More from Women and Wealth:

Here’s a look at more coverage in CNBC’s Women & Wealth special report, where we explore ways women can increase income, save and make the most of opportunities.

And even then, there is a long-term impact that is beyond measure. “We can’t quantify what we don’t know they’ve missed out on,” Javaid said.
There are other groups of AANHPI women working full time who make more than white men, including Chinese women, Indian women, Malaysian women and Taiwanese women; however, these women still make less than men in their respective communities, the report also found. 

‘Disparity thrives in pay secrecy’

There are initiatives that can help narrow the gap, Javaid noted, such as the Paycheck Fairness Act, which aims to eliminate pay discrimination and strengthen workplace protections for women, and pay transparency laws, which require employers to list their minimum and maximum salary ranges on publicized job postings.
“Disparity thrives in pay secrecy,” Javaid said.
The idea is that pay legislation will bring about pay equity, or essentially equal pay for work of equal or comparable value, regardless of worker gender, race or other demographic category.
However, “there is no one solution that is going to close this gap,” she added. “The key is using multiple different strategies.”
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If you’re self-employed, hiring your kids could provide tax benefits.
You could deduct wages as a business expense and fund your child’s Roth individual retirement account.
However, you need to understand state and federal labor and tax laws first, experts say.

Mixetto | E+ | Getty Images

If you’re self-employed, hiring your kids could provide tax benefits — provided you follow labor laws and IRS rules, experts say.  
Small businesses hiring their own children is a popular topic among social media influencers on platforms such as TikTok, Instagram and YouTube. But tax professionals say they are often battling misinformation from such posts.

“Most of the videos on TikTok have a kernel of truth to them, but they’re embellished or it only makes sense in very specific situations,” Matt Metras, a Rochester, New York-based enrolled agent and owner of MDM Financial Services, previously told CNBC.
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“But when you have a 60-second video, you aren’t trying to convey that nuance,” Metras said.
If you’re planning to hire your children this summer, here are some key things to know, according to financial experts.

Employing your kids can be ‘tax-savvy’

“Hiring your child can be a tax-savvy move,” said certified financial planner Sean Lovison, founder of Philadelphia-area Purpose Built Financial Services. “Their wages can be deducted as a business expense, which can lead to significant savings for your small business.”

For 2024, the federal standard deduction for single filers is $14,600.
“If your child’s income falls within the limits, they may not owe any income tax, which can be a win-win,” said Lovison, who is also a certified public accountant.
Plus, payments to children may avoid Medicare and Social Security taxes, depending on the child’s age and your legal business structure, according to the IRS. 

If your child’s income falls within the limits, they may not owe any income tax, which can be a win-win.

Sean Lovison
Founder of Purpose Built Financial Services

Once your child has “earned income,” or wages from employment, they can make Roth individual retirement account contributions, which can be powerful for younger savers, experts say.
There’s a triple-tax benefit for kids: They typically pay little to no taxes on contributions, plus growth is levy-free and withdrawals are generally tax-free in retirement, according to CFP Carol Fabbri, managing partner of Fair Advisors in Conifer, Colorado.
“It is never too early to get in the habit of saving,” she added.
However, you need to watch the contribution limit for 2024, which is your child’s total earnings or $7,000, whichever is smaller.

What to know before hiring your kids

Before hiring your children, it’s important to know state and federal labor laws, along with tax rules, experts say.
“Some states pretty much ban you from hiring children under the age of 14 under any scenario,” Lovison said.
If hired, your children must do real work for the business, and their compensation should be reasonable to match their tasks.
“Record-keeping is non-negotiable,” Lovison said. “It not only helps you navigate the tax landscape but also serves as a valuable resource if any questions arise about your child’s employment.”
Payments to children are subject to income tax withholding regardless of the child’s age, according to the IRS. Hiring kids as W-2 employees and withholding taxes “covers your bases,” but they’ll get a full refund of taxes paid if they’re under the standard deduction, Lovison said.    More