If you are self-employed, A single member LLC, or in a partnership where only the parents are partners, hiring your children to work for you can provide spending money for them and tax savings for you. Each child can currently earn up to $12,000 per year with no income tax liability. As a bonus, if the child is under 18, they are not subject to Social Security or Medicare tax withholdings.
But make sure you follow the guidelines. Hiring Your Children can Save You Money at Tax Time
Pay Reasonable Wages
You can deduct “reasonable wages” paid to your children for legitimate work performed for your business. As long as your children are under age 18 and your business is unincorporated, you generally won’t have to pay Social Security or Medicare taxes on their pay.
Keep Good Records
Ask your child to fill out a time sheet or punch a time clock, and pay with a check rather than cash. Keep in mind that wages that are inconsistent with the job or the age of the child won’t pass muster with the IRS.
Report Their Earnings
Complete and file a Form W-2 at the end of the year showing how much you paid your child. Income that exceeds the standard deduction will be taxable.
As a Certified Tax Coach, our advanced training is designed to lower your taxes and increase your wealth. Request your free consultation today by calling us at 903-793-0042. As a thank you gift for scheduling your consultation, we’ll provide a free book, The Great Tax Escape.