8 Rules to Follow When Placing Your Kids on Payroll in Your Small Business скачать в хорошем качестве

8 Rules to Follow When Placing Your Kids on Payroll in Your Small Business

Why paying your minor child through your small business is a smart tax strategy If you have a minor child and don’t have that child working in your small business, -- maybe you should consider it. ------------------------------------------------------------------------------ As a former IRS Agent, I try to explain federal taxes to defend against an audit. While there are no guarantees, it’s good to have an insiders view. ❣️ Need more information? Contact us. https://taxaxecpa.com/contact 00:00 – Intro 00:35 – Who Can Use This Strategy 00:49 – Benefits of Paying Your Child Through Your Business 01:25 – Example Savings 02:35 – Caution 02:58 – Rules 04:40 – Outro Instead of giving your child an allowance, consider having your child work for your business on the weekends or during the summer. Paying your minor child through your small business can be a smart tax strategy. Before we get into it though, I just want to mention that I really love this strategy as a way to fund an IRA for a child. Just consider the growth possibilities of starting an IRA for your child who is say 12 years old. If your business is a sole proprietorship, single member LLC, or if you are taxed as a partnership, you can take the REASONABLE payments that you make to your child as a deduction on your business return. You won’t have to pay social security, Medicare, or federal unemployment on the payments and you can still claim your child on your personal tax return as a dependent and you can even take the child tax credit. So, the standard federal income tax deduction for 2023 is $13,850. Your goal is to pay your child at or below this amount because your child would pay no federal income taxes on earned income equal to or under that $13,850 for 2023. Now, if your state requires you to cover your child under workers compensation, you want to check to see how much that would cost you. If it will cost you more than the tax savings, then paying your minor child through your small business may not be a smart tax strategy after all. Although paying your minor child through your small business can be a smart tax strategy, IRS examiners know about this strategy and they usually examine it closely. As a matter of fact, when I was an IRS examiner, at the very least, we were required to do a cursory review of payroll with every audit. If an IRS examiner digs deeper into your payroll and decides that your child is not really an employee, you won’t be able to take the deduction on your tax return. So, here are the rules that you should follow to make sure that you are IRS compliant when it comes to paying your minor child through your small business. 1. You can only use this strategy for a sole proprietorship or partnership owned 100% by the parents of the child. 2. Your child must perform ordinary and necessary services for the business. The services cannot be for household chores. 3. The wages that you pay your child must be reasonable in comparison to what you would pay a regular employee to perform the same work. It might be a good idea to print out current pay rates from the internet for jobs related to the work that your child performs. 4. Pay your child by check or direct deposit at least once per month. The funds should be deposited into a bank account in your child’s name. The bank account can be a ROTH IRA, Section 529 college savings plan, or account that you control until your child turns 21. 5. Check and follow federal and state child labor laws. At this time, I do know that a child cannot work in mining, manufacturing, or in any situation that has been declared as a hazard. 6. Please make sure that you keep documentation of when your child actually works. 7. Please make sure that you comply with the same legal requirements required when you hire a stranger. So, that might mean filling out an IRS Form W-4 and completing an Employment Eligibility Verification I-9 Form. 8. Please be sure to issue either a 1099 or a w2 for the year. One benefit of issuing a w2 instead of a 1099 is you can contribute to their 401k under your plan if you have one. While I highly recommend that you consider this strategy, my suggestions are not official tax advice or legal advice. Please consult with your tax advisor for personalized planning. ABOUT US: Welcome to Tax Axe! It’s time to learn some S Corporation federal income tax strategies. It's true federal taxes can be complicated, so we’re here to help you navigate it. On our channel, we believe you shouldn’t have to pay more tax simply because you don’t have enough knowledge on the subject. Ready to learn? 👉 𝐈𝐟 𝐲𝐨𝐮 𝐥𝐢𝐤𝐞 𝐭𝐡𝐢𝐬 𝐯𝐢𝐝𝐞𝐨, 𝐩𝐥𝐞𝐚𝐬𝐞 𝐥𝐢𝐤𝐞 𝐢𝐭 𝐚𝐧𝐝 𝐬𝐡𝐚𝐫𝐞 𝐢𝐭. 👉 𝐃𝐨𝐧'𝐭 𝐟𝐨𝐫𝐠𝐞𝐭 𝐭𝐨 𝐬𝐮𝐛𝐬𝐜𝐫𝐢𝐛𝐞 𝐟𝐨𝐫 𝐦𝐨𝐫𝐞 𝐮𝐩𝐝𝐚𝐭𝐞𝐬    / @tax-axe   #paychildthroughyourbusiness Media courtesy of: