Hire Your Children to Work for You!

School is out for the summer, and perhaps you’re wondering how to make the most of your children’s’ vacation. If you are a business owner, and your children are under the age of 18, then you can save a significant amount of money on taxes by hiring your own child as an employee.

Besides teaching responsibility and money management, hiring your child as an employee allows you to deduct his or her salary as a business expense. In other words, you can shift a portion of your business income from your tax bracket to your child’s, lowering your income and self-employment tax. Furthermore, children under the age of 18 are generally not subject to Social Security and Medicare (FICA) taxes.

Before hiring your child to work for your company, implement a plan to ensure you avoid doing things that attract the scrutiny of the IRS. First, hire your child to do legitimate work that suits the child’s age and ability. Pay your child a reasonable amount that coincides with industry norms, and treat your child as you would any other employee. Namely, issue pay in the form of a check, per your company’s payroll schedule. Avoid issuing payment in the form of one large check at the end of the year, as the IRS might think you are merely trying to reduce your tax bill. Fill out all of the required forms, such as a W-4, I-9, and Employment Eligibility Verification. Also, complete and file a W-2. For IRS guidance on this topic, please click here to read about it on the IRS.gov website.

If you would like professional advice on how to reduce your family’s overall tax liability, then please contact White and Associates today!