Your son or daughter may be eager to earn extra money in the summer or to accommodate his or her school activities. Why not hire your teenager to work in your business? The benefits are tremendous for BOTH parent and child. Here are five benefits:
→ Tax Deduction for Wages Paid.
You are allowed a business tax deduction for wages you pay to your child. Your child must be a reasonable age, perform reasonable work, and receive reasonable compensation. You still maybe able to claim your child as a dependent.
→ No Employer Taxes On Wages Paid.
If your child is under the age of 18, you do not have to pay any social security or Medicare taxes as long as you are a sole proprietorship. If your child is under the age of 21, the child’s wages are also exempt from Federal Unemployment Tax.
→ Child Can Earn Tax-Free Money.
As long as your child earns up to the “standard deduction”, your child has no tax liability. In 2017, the standard deduction for a single person is $6,350. So, your child can earn up to $6,350 and pay no income taxes.
Don’t forget about the IRA contribution! You can fund an IRA each year for an amount up to what the child earns capped at the yearly limit ($5,500 in 2017). It can be used to pay for future education expenses, a home purchase or retirement.
→ Child Develops Work Ethic.
Hiring your child can help give your child the skills needed to be an independent and successful adult. Your child learns how to keep a schedule, dress professionally, how to work with others and how hard work leads to monetary gain, for example.
→ Spend Quality Time With Your Child.
Having you child work for you is a great bonding moment. Your child gets to see you as a leader; You get to nurture your child’s job skills. There is no price tag on spending time together.
Giving your teenager a job in your business can be a win-win for both of you emotionally.
Nevertheless, hiring your teenager to work in your business is still a great financial tool. The rules allow for income shifting from your higher tax bracket to your teenager’s tax bracket. This can result in substantial tax savings.
John J. Kasperek EA, President of Kasperek & Co. Accountants, likes to see the young generation get the assistance they need to join the work force. Any questions on these strategies? Give John or his knowledgeable staff a call.