05 Feb Why Not Give Your Children a Job This Summer?
Your child or children potentially could be a valuable employee, as well as a significant tax write-off!! This has to be one of the most underutilized tax reduction strategy for small business owners with families.
I always make my clients aware of being able to pay their children under 18, and over 7 years old, as well as adult children or grandchildren, to minimize their taxes.
When you pay your child under 18 years old, you do not have to withhold any payroll taxes or pay worker’s compensation. The reasoning is that the government and insurance companies assume that your child with not sue you if they are hurt on the job, and its in accordance with IRS Code Section 3121(b)(3), and included in IRS Publication 15.
More important is that your child does not pay federal income tax on the first $6,300 of wages in 2015. In addition, you can still claim your child as a dependent and take the exemption as well. In effect, the small business owner can generate a tax deduction of $6,300, by moving the income to the child. Of course, their are specific parameters that must be adhered to to receive this result, that I educate my clients on.
There are a myriad number of ways to achieve this results through utilization of specific tax structuring. One could set up a family management company that is paid a management fee from your Corporation or sole proprietorship, that has its own independent income and operations.
This tax reduction strategy can save your family thousands of dollars. Remember also, that when your child has earned income of $6,300 or more, say $12,300, he or she can contribute to an Individual IRA account as well, to further enhance this dynamic tax strategy.