Did you know there are tax advantages associated with hiring your children? Salaries paid to your children under 18 are not subject to the social security tax, or FUTA (up to age 21) when employed in a parent's sole proprietorship. Fringe benefits are also available to the child. It's very important to remember wages must be reasonable and you have to prove your child actually worked. For example, don't say your 3-year old lifted inventory in your factory!
Think twice about giving your children allowance and consider the advantages of giving them a paycheck:
1. It enables you to take advantage of the child's full standard deduction
2. It enables you to reduce adjusted gross income, thereby preserving personal exemptions and itemized deductions
3. It enables your child to make contributions to an IRA
4. It enables the child to receive money that is not subject to the kiddie tax
As employees, your children can participate in a qualified retirement plan and any of the company's other fringe benefits, such as:
• Group-term insurance
• Accident and health insurance
• Educational assistance
• Travel and entertainment
The Tax Factor was created to educate individuals and small-business owners about taxes. Let’s face it, nothing in life is guaranteed except death and taxes. Okay, maybe that sounded pretty depressing but the goal of this blog is to help you find the information to learn how to make taxes work for you. Taxes can be extremely complicated but knowing about deductions and credits can save you thousands of dollars per year.
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