June 15, 2015
School’s out for many kids, and if you run your own business, you may be able to turn your child’s summer break into a tax advantage—and some extra help—for you.
Hiring your offspring as an employee to do legitimate work in your business provides several tax benefits:
Sounds great…doesn’t it? Keep your kids busy all summer, get additional assistance at your business, and reap the tax savings. However, the IRS does keep close tabs on parents who employ their children to ensure that the situation is legitimate and in keeping with these three rules:
Rule 1: Your child must be a bona fide employee
The work your child does must be common and necessary for your business and their pay must be for services actually performed. Their services don’t have to be indispensable, but they do need to be appropriate for your business. Any real work for your business can qualify, but personal services such as babysitting or lawn mowing at your residence do not.
How young can a child be to qualify as an actual employee? According to recent reports, the IRS accepts children seven and older as being able to perform useful work for a business. You should keep track of the work and hours your children perform by having them fill out timesheets with the date, the services performed, and the time spent performing the services.
Rule 2: Keep compensation reasonable
Your child’s total compensation (salary plus fringe benefits) must be reasonable. This is determined by comparing the amount paid with the market value of the services performed. In order to keep track of what you pay your child, use checks (not cash) once or twice a month just like you would for any other employee. The funds should be deposited in a bank account in your child’s name.
Rule 3: Legal requirements for employers still apply
Even if you are hiring your child, you must comply with the same legal requirements as you do when you hire any other employee. This includes completing IRS Form W-4 and U.S. Citizenship and Immigration Services (USCIS) Form I-9, Employment Eligibility Verification. You must also record your child’s Social Security Number and complete and file IRS Form W-2 showing how much you paid your child.
An important note: The federal employment tax exemption for minors employed by their parents mentioned above, is only available when the parent’s business (the employer) is conducted as: (1) a sole proprietorship, (2) a single-member LLC (SMLLC) that’s treated as a sole proprietorship for tax purposes, (3) a husband-wife partnership, or (4) a husband-wife LLC that’s treated as a husband-wife partnership for tax purposes.
If your business is a corporation, the federal employment tax exemption is unavailable for wages paid to your child, but hiring them can still be a tax advantage because your child’s standard deduction will provide an income tax shelter and your business can deduct the wages and the employer’s share of employment taxes.
If you’re a business owner with a child capable of doing meaningful work, this summer may be the perfect time to introduce them to the concept of earning their keep—and helping mom or dad in the process!
August is upon us once again. The collective “UGH!” is heard nationwide as families trudge toward the school supplies aisle in preparation for the upcoming academic year. Sadly, the “days-gone-by” supplies such as a box of crayons, spiral-ring notebooks and a pack of #2 pencils have evolved into a much longer list. But never fear, we’ve put together these useful tips to help you do “back to school” on the cheap.
So popular was the topic of our last post, that we created Part II to create our eating-healthy-this-summer-themed blog series. Enjoy these added nutritional and time-saving tips for summer meal planning.
If you are like most, summer is prime time for family and friend vacations. It’s a time to unwind and recharge…to see new places and try new things. For many, “new things” often means food. And if you are trying to maintain or lose weight, that can be a problem. So, for all you travelers trying to stay healthy this summer, here are 5 great tips to help you stay on a healthy eating plan and still enjoy your vacation!