PS If a kid comes to me demanding unemployment - he will be sent to his room without any supper!
[COLOR= rgb(16, 16, 16)]Children and the Family Business[/COLOR]
[COLOR= rgb(68, 68, 68)]May 8, 2008 by: KathleenHave you heard the ad on the radio? You know, the one with the kid talking with the cute lisp about her Dad’s used car lot? Or how about the yellow page ad, the one with the picture of the dentist and his family? Do the used car salesman and the dentist think that using their children in their ads will help bring in business? Or maybe the reason they have their children in their ad is because they have a shrewd tax adviser?
One of the benefits of running a small business, and especially a family business, is the ability to hire your children. Children under the age of 18, working in their parent’s unincorporated business, are not subject to the same rules as other employees. As such, there can be considerable tax and business advantages to hiring your children.
Unlike other employees, when parents hire their children, they do not need to pay payroll taxes such as Social Security, Medicare, and unemployment taxes on their child’s income. Worker’s Compensation insurance is usually not required. Thanks to the standard deduction, in 2008, children can earn up to $5,450 completely tax free, and any income over that will be taxed at the child’s tax rate, not the parent’s. (It is only on unearned income, such as dividends and interest, that children are taxed at their parent’s tax rate.) If you have your child contribute to their own traditional IRA, they can earn an additional $5,000 tax free.
f your child does not need that extra $5,000 deduction, consider contributing to your child’s Roth IRA. [/COLOR]A Roth IRA can be a great way for children to save for college and for a first time home purchase. Because Roth IRA contributions are not tax deductable, you can withdraw them at any time without penalty.Earnings can also be withdrawn penalty free for IRS approved expenses such as college and for a first time home purchase. (Please check with your tax adviser regarding your personal situation.)
Having your children work in your business can provide large tax breaks, however, be aware that the IRS looks at these arrangements closely. It is very important that you treat your child just like any other employee. This means they should have a regular work schedule, they should keep track of their hours, and they should be paid on a regular schedule. Be sure to write an actual check to your child and deposit the check into the child’s bank account. You must also pay your children at the same rate as you would pay a non family member. It is not reasonable to pay your 7 year old $1,000 per month to take out the trash!
Keep excellent records when you have your children work for you. In addition to the regular payroll records that you keep for all employees, keep a record of the actual work that your child does. This will come in handy if the IRS ever questions the validity of your child’s employment.
What kinds of work can you have your children do? Young teens can do cleaning and basic office work such as filing and data entry. Older teens can greet customers, answer phones and schedule appointments. But what about the younger kids? Remember our car salesman and dentist? Children and even babies can be hired as models for your print ads and as talent for your radio ads. Not only can you pay them for the time spent in creating the ad, you can pay them a royalty every time the ad is played or printed.
So consider hiring your children to work in the family business. You’ll give them valuable life skills while creating tax benefits for yourself, and retirement savings for them.
http://mycfoonthego.com/children-and-the-family-business/.
