Hiring your kids can have a multitude of benefits for you, your business, and your kids! I have listed some below:
- You get money in your kid’s hands that doesn’t come directly out of your pocket.
- Your kids develop a work ethic.
- Your kids learn some business knowledge they can use in later life.
- You and or your business get a tax deduction.
- Your business gets some job or task accomplished.
- Your kids can start a Roth IRA since they have earned income.
How do you do this without creating more taxes on yourself or your business? Plan ahead!
- If the wages paid to your kids are paid from a sole proprietorship or partnership of their parents (you and your spouse), then you can avoid the social security and Medicare taxes, also known as FICA taxes, and the FUTA taxes, also known as federal unemployment taxes.
- If, however, you have a Partnership with a non-spouse or an S-Corp, (and who doesn’t?), then you should use the following strategy. Establish a family management company that is a sole proprietorship. The family management company provides services to the S-Corp or Partnership as provided by in an agreement between the two entities. The family management company pays your kid wages.
Contact us if you would like help setting up such an arrangement to pay your kids and save on taxes!