As long as they’re doing legitimate work for your business you can hire your kids.
As long as they’re doing legitimate work for your business, you can hire your kids and pay each of them up to $12,000 per year tax-free.IT’s true. And all of this while they earn a little money AND start saving for college or that first business. And it’s all tax-free.
You can hire your kids and pay each of them up to $12,000 per year tax-free. If you hire your son to stuff envelopes and your daughter to update your website then you get to lower your personal income by $24,000! Simply by engaging your children in the family business.
If they stay under this limit, they don’t even have to file a tax return, which means they don’t pay any income tax on it. And you get to deduct their wages, which lowers your business’ taxable income.
BUT WAIT. THERE’S MORE.
The IRS ACTUALLY Rewards You For It! Source: Publication 929 (2018), Tax Rules for Children and Dependents)
If you have children between the ages of 7 – 22, you can use this strategy to save some money. Here is how it works:
- Each of your children can be employed by your business and paid an annual wage of $12,000. This is an important amount, because it is the standard deduction amount for single individuals.
- Your business gets to take a deduction for the payment, thus decreasing your taxable income.
- Your children will then file their own tax return, & since they only made $12,000 they pay no federal income tax because the standard deduction of $12,000, their taxable income is ZERO.
- So the business gets to take a deduction, but the kids pay no federal income tax. It does not get much easier than that!
This strategy can also be combined with IRA and 401k strategies to really maximize the benefit. For instance, if you paid each child $12K each as salary. You could put $6K into an IRA that is deductible, and you can use their standard deduction to take their taxable income to zero.
In that case, your business can deduct $18K per child, but again, no taxable income.
If you want to save money then hire your kids and make sure you have them actually work!
Keep track of the hours and tasks your children perform and make sure it’s age appropriate. DOL Rules Regarding Youth & Labor The IRS isn’t going to believe your 5 year-old earned $12,000 analyzing dental records. But that 5 year-old can model those pearly whites in photographs to be used on your website or brochure! It’s easy to document an “image agreement” that pays an ongoing licensing fee right from the start.
Using this strategy, rather than just dumping change into their jar, (money you likely paid personal taxes on) you’ve moved those taxable dollars from your tax rate, to your child’s tax rate and bracket, which, is zero, and you still keep the money in the family!.
There are countless jobs kids can do for you, and remember, you can pay them at the SAME RATE you would pay any other employee or outsourced company.
Here are just a few simple ideas to get you started:
- Cleaning the office
- Washing company cars
- Updating customer lists in the computer
- Simple to advanced Data-entry
- Transcribing video or audio
- Trips to the post office or general errands
- Helping at the office, passing out handouts and more
- Walking door to door, placing fliers for your business
- Updating your social media accounts (They won’t even equate this as work!)
For more tax saving tips check out how my blog on Tax Deductions VS Tax Credits!
Then put on your HR hat, because you’ve got some little new hires to train!