There are a number of what I consider to be unusual opportunities to reduce your business taxes. This is an idea to take to your tax advisor and figure out if it works for you. The tax rules are complex and filled with traps for the unwary so don’t run with any tax idea without checking first with your advisor. Ok, enough with the disclaimer.
If you’ve ever looked at your kids and said “You can’t sit on you tail all day playing video games. Go find a job”. Well that is exactly what we are going to do for them-get them a job and you are going to be their boss! Here is the best part; while your kids are working you are going to save some taxes! It sounds too good to be true doesn’t it?
Get Off The Couch & Get A Job!
I can give you the tax angle here but I’m not so sure I can give you the specific words to inspire junior to actually shower, put clean clothes on and show up for work. I never said this would be easy.
Here Is The Idea
If have a business and operate it business as a:
- Sole proprietorship,
- Single-member Limited Liability Company LLC treated as a sole proprietorship, or
- Husband-wife partnership
Consider hiring your children under the age of 18 to work in your business part-time or full-time. In order for this strategy to work, they really do need to work.
If you are organized as an S or C Corporation, the strategy still works but you don’t get the employment tax benefits discussed below.
The tax benefits for your child using this strategy are:
- There wages are exempt from Social Security, Medicare and FUTA taxes (basically the employment taxes).
- For 2013, the standard deduction for a single taxpayer is $6,100. In the case of a dependent child, they are entitled to use this deduction to the extent they have wages. Not a bad deal, would you agree?
The tax benefits for you as the parent and a small business owner are:
- You can deduct the wages you pay to your child.
- They learn a valuable life lesson about working, savings and taxes. This is a teachable moment about business and understanding how the tax rules can work to your advantage.
- College savings can be enhanced with this strategy by making $6,100 basically tax free
Of course, the more kids you have, the bigger potential tax benefits. Once they reach 18, the strategy still works but the wages are no longer exempt from the employment taxes mentioned above.
You need to work on a few other issues like:
- State Income Taxes
- Labor Laws
- Workers Compensation Insurance
As I mentioned above, consult with your tax advisor and see if you can get the teenager in your life to bring home some tax bacon!