Happy Father’s Day to all the dads out there! In addition to your Father’s Day card and new tie, here’s a tax benefit of being a parent that will make your day…hire your child to work for your business! Just a note: of course this works for moms as well but I missed this post on Mother’s Day.
The benefits of hiring your child, under age 18, to work for your business apply to you as well as your child. Let’s talk about you, the business owner, first. The money you pay your child is a deduction that will reduce your federal income tax bill, your self-employment tax bill and your state income tax bill. The write-off also lowers your adjusted gross income (AGI), which makes it less likely you will be hit by the extra Medicare tax, the Medicare surtax on investment income, and other unfavorable phase-out rules. Additionally, money is kept in the family instead of paying outsiders. Have your child do simple cleaning or filing of paperwork, basic skills they can master and increase their confidence.
Your child benefits as well, even if they don’t realize it at the time. There are no federal employment taxes on the child’s wages. When it’s time to file taxes, the first $6,300 of earnings is protected from federal income tax by using the standard deduction. Your child also learns valuable work experience. The money they earn can be saved for college in a 529 plan. Or have them pay for their own clothes and entertainment, instead of you! This will teach them to budget and the reality of how far a dollar will go.
Now if we could only put those fur babies to work!
Jordan Ilderton, CPA