In the ever-evolving landscape of tax laws and regulations, it’s crucial for business owners to stay informed and take advantage of every opportunity to optimize their financial strategies. One such opportunity that often goes overlooked is employing your children in your business. Not only can this be a valuable learning experience for your kids, but it can also provide significant tax benefits for your business.
In 2024, you can pay your child up to $14,600 tax-free, as long as the work is reasonable and age-appropriate. This means that you can assign tasks to your children that are within their capabilities and contribute to your business’s operations. The best part? If your business is structured as a sole proprietorship, SMLLC, or an LLC taxed as a partnership, solely owned by you and your spouse, you won’t need to worry about FICA taxes. However, if you’re running a C Corp or an S Corp, you will need to withhold FICA taxes from your child’s wages.
The tax benefits don’t stop there. Your business can take a tax deduction for the full amount paid to each child, effectively lowering your taxable income. If this is your child’s only income, they won’t need to file a tax return, thanks to the IRS’s minimum filing requirements. This can be a significant advantage, especially for families with multiple children.
But wait, there’s more! Your child can also qualify for retirement contributions. Imagine setting up a Roth IRA for your 5-year-old and watching that sweet tax-free growth over the years. The possibilities are endless, and the benefits can be substantial.
As with any financial arrangement, it’s essential to keep detailed records. Make sure to maintain a work log that includes the date, time, and nature of the work performed by your child, as well as how they were paid. It’s also a good idea to spread out payments to avoid any suspicion.
So, what kind of jobs can your kids do? The possibilities are limited only by your imagination and your child’s abilities. Here are a few examples:
- Modeling for your website
- Data entry
- Social media management
By employing your children in your business, you not only provide them with valuable learning experiences but also reap the tax benefits that come with it. So, don’t miss out on this opportunity to optimize your financial strategy and set your child up for success.
Disclaimer: The information provided above is not meant to be legal or tax advise. You should consult your CPA and attorney to determine the best course of action for your situation.
Mitzi E. Sullivan, CPA is a cloud based professional services provider
specializing in cloud accounting.