Hire your kids and reduce your taxes!
Are you in need of an extra set of hands around the office? Hiring your child has always been a smart way to reduce your Business tax liability and is beneficial for both, your business and your family. Before you jump on the search for a new assistant/ janitorial services you should consider this alternative, keep in mind they need to be old enough to realistically perform the job you are employing them for.
Nowadays, they are always around the house, attending online classes and in most cases with some free time in their hands. Take them to the office, set a space where they can do their schooling. When they are done with it, have your child take on some of the job responsibilities. Although, the main reason for this post is to seek financial benefits, let’s not leave behind the big impact and the learning experience this is for your kids. You are going to teach them the value of hard work, responsibility and how to be accountable for their actions.
Let’s dive into some advantages:
Deductions for your business:
Depending on your business entity structure, their income may be exempt from Social Security, Medicare and Federal Unemployment.
Your child’s salary will deduct your Business gross income.
No need to withhold payroll taxes.
Effectively shifting income to a lower tax bracket.
Advantages for you child and your family:
You can claim your child as your dependent on your taxes and still get the perks of the Child Tax Credit.
The first $12,200 are Income tax-free.
You can start investing in your child's future by contributing to a College Funds or Retirement Plan.
As mentioned before, this is a learning experience for your son or daughter, and this way you can involve them in the family business.
If all of this sounds good to you, do it, but do it right. Create an employment agreement where you can outline the job’s responsibilities and hourly rate. Make sure you pay your child a reasonable amount for the duties to be performed and pay them by check or direct deposit. Consider your child as a regular employee, file proper taxes and issue a W-2 to show how much your child was paid.
Definitely get all the proper information before doing it, talk to your Tax Professional to discuss your options. If you need further assistance please reach out to me. I’ll be happy to help you.
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