In opening up this article, I want to direct you to a few facts that many did not think hard about – but you will see that you got to.
The first one is the fact that, an average black child does not start their retirement fund until they are aged between 25 and 26.
Secondly, for some time now, I have been hearing about this rule of reinvesting money back into your small business. The rule states that you must reinvest at least 10% of profits earned back into the business. And, according to Fundera, 86.3% of small business owners make less than $100,000 a year in income.
Lastly, I learned from Market Watch, that it’s actually shocking how many families squander inherited wealth. It says that rich families tend to not be able to sustain their level of wealth beyond two generations. And, as you read further this article, you will learn why this could happen even to your family as I posit how you can minimize the risk of this happening in your own household.
So, what do the above assertions say to you as I want to speak to you about the importance of creating generational wealth using tax savings from hiring your under age children?
First things first, tax saving is the first step to building generational wealth. In opening up my how part, I direct you to my first fact in the first of the above three; with hiring your child, you allow them to start contributing towards their retirement (using their Roth IRA) when they are still in their teens.
So, if your 13-year-old girl starts investing about $4,000 in her Roth IRA now, by the time she turns 25 (where the rest of the average black child starts saving) she would have saved $4,000*12, and that is a massive $48,000 ahead of the curve! And remember, this assumes that as she grows up into her late teens and early twenties, she keeps on saving the same amount of $4,000. Imagine if she enjoys that savings culture and actually increases her annual savings with time?
So, as an average black child starts to think of contributing to her savings, she will already be thinking of putting her money into stocks or real estate – and this would have started when you hired her and started paying her a salary.
Furthermore, as I look at my second fact in opening up this article, I see that at average, a small business owner can reinvest about $10,000 (10% of $100,000 annual income) back into the business. But, I would also like to say, as much as this is looking OK, hiring your 3 children could more double that amount just in one year, and that is all possible! Imagine when you hire 3 children and reduce your taxable income by up to $12,000 per child per year? If you are in the 35% tax bracket, that amounts to an extra $12,600 in your balance. Add that to the $10,000, you end up reinvesting more than $20,000 in your business every.
Now, there is a lot you can do with that amount every year. It, therefore, accelerates your journey to building generational wealth for your family.
The last fact in my opening remarks is on how families squander wealth that they inherit. Now, remember that all the generational wealth you build is for your future family to enjoy and pass on to the next generation. But, without hiring your kids when they were still minors, they could destroy it all when you leave them in charge. Why is it so? Well, we once said that hiring your child helps them with financial literacy.
This is a true fact because once they start getting paid, they suddenly know how to budget because you could easily tell them to pay for their own data and phone expenses. You may also tell them to pay for their own hair-do and still encourage them to save extra money. A child that grows like this can easily look after your business and properties when you are gone. They will also know how to teach their own children how to safeguard the family’s generational wealth.
I say the above because if this is not done, sometimes money can use your kids if they make money as a young person without being taught on how to use money as a tool for them. Being at work with their family is an easy way to help them learn how to be in control without being controlled by money.
You must never underestimate the power of exposure. As for me, I wanted to be an accountant since the age of 14, but without the exposure, how long do you think I was going to take to become as brilliant as I am in the field?
Generational Wealth is a long-game, it requires patience
If you look at all the above facts about hiring your child for creating generational wealth, they all speak of small savings that must build up to something meaningful. As such, saving when hiring your child is a long-game, it is also about the small amounts you save, not hundreds of thousands in a few months as many people dream of. Thinking you can save hundreds of thousands and wanting to do it in a short space of time is misleading, you got to play and plan it well.
Therefore, stop the pressure that gets generated in your circles that generational wealth is only created when you start buying buildings in the real estate sector. If you have the money to do that, then great for you, but if you don’t, there is also an opportunity for you to start building generational wealth using this strategy that I am telling you about.
Don’t worry about the rules, rather worry about keeping your money in the family
Some people approach me and ask if they won’t be in trouble for hiring certain people, including their own kids. Well, there are no regulations from the government or the IRS that says you should only hire so and so. It is entirely up to you, the business owner, to choose the people that you hire. And, I am saying that your kids should really be set in front of the line because that alone sets you up on the path of saving on tax and building generational wealth.
If your business makes $50,000, and you have a child that can do your social media for you for $5,000, this means that when the IRS taxes you, they do so only on the $45,000. What would just have happened here is the fact that you reduced your taxable income by $5,000.
Here is a simple math, from the above, if you pay your child the $5,000, it means that your household retains the whole amount of $50,000. But guess wat? Many of you out there are paying someone else to do the social media. And when you do, you let your family keep the $45,000 alone, also without reducing taxable income by that same amount.
Therefore, hiring your child is a simple way of saving on tax and helping your journey to building generational wealth. All you need is to give yourself a chance to learn how to do it properly, will you?
Short Copy for The Article
You ever think of generational wealth planning? You ever think of creating a lasting solution for poverty in your household? Think about hiring your own under age child as a tool for achieving this. The US tax rules legally allow you to do so, you just need to know how.