Are your kids itching for extra spending money? Got a spouse lounging around the house who needs something to do? Is dad retired and underfoot? Round them all up and put them to work… and the IRS will reward you with tax breaks that can really add up.
Teach Your Children
Well When the kids are ready to learn the value of a dollar, the IRS is ready to help you teach them. IRS rules exempt the wages you pay to your children from Medicare and Social Security taxes. The only caveats: the kids must be under 18 and your business must be a sole proprietorship or a husband-wife partnership. Not only will you save on Medicare and Social Security taxes (totaling about 15% of the wages), but you’ll likely be transferring income from your tax bracket to that of your child, which is (hopefully) lower. Now we’re talking savings!
Small Print for Small Employees
The IRS is naturally wary of deductions for children working so it is therefore important to adhere strictly to the rules. You will need to be able to prove that your son or daughter genuinely is employed by you; that the work that he or she carries out is possible according to the age of the child; and that the pay is close to market rate. In other words, don’t expect that the IRS will agree that your four-year-old deserves $35 an hour to answer phones for you. And if your company is a corporation or estate… none of the exemptions apply at all. Sorry!
Put Pop to Work Too
If it is hubby or grandpa that you want to get out of the house, you’ll be glad to know that there are special tax savings for that too. Wages paid to a spouse are sometimes exempt from FUTA (Federal Unemployment), but the IRS rules are somewhat vague on this topic, so be sure to check with your tax advisor. More clearly, parents’ wages are not subject to FUTA “regardless of the type of services provided”, according to the IRS website.
All in One Boat
Now that you’ve got the whole Fam-Damily working for you, you couldn’t be blamed for making plans to spend your tax savings on a vacation… uh, alone maybe?
Dedicated to your (family-powered) success, Richard Silverwood
*Guest Blogger Richard Silverwood is a freelance writer who first developed his interest in business while running a small company called PRW in the North of England. He funded the company via a government grant and soon had Subway as a flagship customer. PRW provided tutors for a diverse range of clients, from youth charities to adult social clubs. Richard is now a freelance writer. Contact him at Linkedin or rich_kay @ rocketmail.com