Employing your children in a legitimate business venture can be financially advantageous!
- Deduct their wages from your income as business expenses (always true)
- No payroll taxes (social security, medicare, state unemployment, state disability) until 18
- No unemployment taxes until 21
- Children don't pay taxes on earned income up to the standard deduction ($6100 in 2013)
- Children can open an IRA and guarantee future millionaire status
If your child is any age less than 21, you can hire them and deduct their wages as business expenses.
If they’re under 18 and your business is unincorporated, you will pay no Social Security or Medicare tax.
- Wages and job functions MUST be reasonable
- Job functions must be 'necessary and essential' to your business
- You must substantiate the deduction by maintaining records
- You must issue your kids (and the IRS) a Form W-2 at the end of the year
- You must withhold income tax
Tip: write the state Dept of Labor and inquire whether hiring your children in your unincorporated business would violate any state child labor laws. It won’t… and you can save the letters to substantiate your business motive and profit objective!
- Standard Deduction - http://taxes.about.com/od/deductionscredits/qt/standard.htm
- IRS, Family Help - http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Family-Help
- IRS, Tax Rules for Children and Dependents - http://www.irs.gov/publications/p929/ar02.html
- IRS, Employer's Tax Guide - http://www.irs.gov2013.04.29 /publications/p15/index.html
- http://bizfinance.about.com/od/businessdeduction1/qt/Salaries_and_Wages.htm
- http://biztaxlaw.about.com/od/employmentlaws/f/hiringchildren.htm
- http://www.reesnet.com/tax/planning/lvl02800.htm
- http://smallbusiness.chron.com/can-hire-children-work-small-business-24301.html
(research originally performed on 2013.04.29)