This Is Why You Should Hire Your Child.
Running a family business can be a dream! The prospect of earning more money for your family, being your own boss, and never having to beg anyone for a job sounds exciting. However, if you are doing it at a loss, or are finding yourself receiving a bunch of emails from the IRS saying you owe more taxes than you paid – it just kills the dream. It is an eternally depressing phenomenon. For this reason, I teach entrepreneurs, like you, tax strategies to reduce the burden of heavy taxes on them. And, in this article, I will be talking about why you should hire your child in your business.
In what type of business can you hire your child?
I get this a lot – many entrepreneurs call saying that they hired their children only for the IRS to say something is not right. Therefore, even as parents employing children, they failed to enjoy the benefits. They failed to save a dime from taxes. If it happens year in year out, it becomes a real frustration. But I want to help you understand something that many of you miss right from the beginning. Remember, to get anything right, you ought to start from the right foot. If that is not the case, you will be facing a monumental failure. But I am here to help you so that it is not the case with you.
So, first things first, when you hire your child, the aim is so that they do not pay the social security and Medicare taxes. That is if they are 18 years old or younger. If they are between the age of 18 and 21, they will not be subject to Federal Unemployment Tax Act (FUTA) tax. But not all types of businesses can result in such benefits of hiring your child. So, the question is: In what type of a business can you hire your child and save on taxes?
According to the IRS, the payments that are made to a child aged 18 years and younger are not subject to social security and Medicare taxes – if, and only if the business, or trade, is a sole proprietorship or a partnership in which “each partner is a parent of the child.” Therefore, the stated conditions are that the business must either be a sole proprietorship or a partnership.
According to the above, even if a child is employed in a partnership – if it is not both of his or her parents owning the partnership, there shall be no tax benefits. Below are the rest of the exceptions, as per the IRS.
A child, even if hired by a parent, will be subject to income tax withholding as well as social security, Medicare, and FUTA taxes if they work for;
- A corporation, even if it is controlled by the child’s parent,
- A partnership, even if the child’s parent is a partner unless each partner is a parent of the child, or
- An estate, even if it is the estate of a deceased parent.
Therefore, it is not every time that you hire a child and enjoy tax benefits. You must consult a tax professional to be sure that you are doing it right. If you need such help, be sure to contact my office, book an appointment and start doing things right.
Why must you hire your minor child?
Below are the reasons why you should be hiring your child now.
- The salary you pay your child can be deducted, as a business expense, from your business taxes.
- Your child does not pay taxes, subject to a few exceptions, so you keep even more money in the family.
- Your child can start contributing to their retirement account
- Upon retirement, your child could be a millionaire, depending on how old they are when you hire them, as well as how you strategize their retirement contributions.
Above are just financial benefits or reasons for hiring your child now. But there is more, which I will share with you in the upcoming weeks. If you do not want to miss out on any communications regarding how to hire your child, sign-up here and join the waiting list for my upcoming How to Hire your Child Masterclass. I will be teaching everything that you need to know about legitimately hiring your children to save thousands of dollars every year.
When you hire your child, it indeed saves you thousands of dollars through taxes. However, always remember that the work you make them do must be legit. There must be some paperwork involved, just like when you hire an accountant whom you are not related to. I am talking about things such as contracts of employment and timesheets if need be. Remember to join the waiting list for the How to Hire you Child Masterclass and be the first to know when it will be presented.
People have also asked the following
1. What are the Tax Benefits of Hiring Your Children?
There are two main tax benefits of hiring your child. 1. Their salary is not subject to social security, Medicare, and FUTA taxes. 2. You can deduct their salary as a business expense.
2. Why It’s Tax Smart to Hire Your Children?
Hiring your children does not only result in tax savings but the money you save is kept in the family. For example, if you pay one child $12,550 in 2021, that will be a full tax deduction, but the money remains in the family through your child.
3. Is Hiring Your Child as an Employee a Good Idea?
Yes, it is a brilliant idea.
4. What Are the Risks Of Hiring Your Child?
There are no known risks of hiring your children. In fact, by hiring them, it results in several tax benefits as well as other benefits such as them learning how to run a business at a young age.