School’s out for the summer which means it’s the perfect time for our Divas who are business owners to think about hiring their own children. This is one of the best ways to get help on simple tasks such as a mailing, or even something more complex like adding social media to your web page, while getting a great tax break too.
Did I hear tax savings? Yep! It’s called “income shifting” and the goal is to have the child (presumably in a much lower tax bracket) earn and report the income you pay them on their own tax return which in turn reduces the amount of taxable business income that flows through to you. Since reducing your business income can help you save on both your income taxes and your social security taxes, it has the potential of a total tax savings of over 50 cents for ever dollar you pay your own child! (Your actual tax savings will depend on many factors, including the “kiddie tax” so always consult your tax advisor for the benefit for you personally.)
Extra benefit for hiring your child who is under the age of 18? As a business owner, you’re responsible for paying FICA (Social Security and Medicare) taxes on wages paid to your employees. The payment of these taxes will be a deductible business expense for tax purposes. However, if your business is a sole proprietorship and you hire your child who is under age 18, the wages that you pay your child won’t be subject to FICA taxes.
As is the case with wages paid to all employees, wages paid to family members are subject to withholding of federal income and employment taxes, as well as certain taxes in some states.
Best of all: This will help your child learn what you do while filling up their savings,or earn their own spending money for the summer blockbusters! So instead of searching for an intern on Craigslist, why not give this a try?