If you\u2019re a business owner and you hire your children this summer, you can obtain tax breaks and other nontax benefits. The kids can gain on-the-job experience, save for college and learn how to manage money. And you may be able to:<\/p>\n
Shift some of your high-taxed income into tax-free or low-taxed income, and Realize payroll tax savings (depending on the child\u2019s age and how your business is organized). Plus, you can spend more time with your kids.<\/p>\n
If you hire your child, you get a business tax deduction for employee wage expenses. In turn, the deduction reduces your federal income tax bill, your self-employment tax bill (if applicable) and your state income tax bill (if applicable). However, for your business to deduct the wages as a business expense, the work performed by the child must be legitimate and the child\u2019s pay must be reasonable.<\/p>\n
Let\u2019s say you operate as a sole proprietor and you\u2019re in the 37% tax bracket. You hire your 16-year-old daughter to help with office work on a full-time basis during the summer and part-time into the fall. Your daughter earns $10,000 during 2022 and doesn\u2019t have any other earnings.<\/p>\n
You save $3,700 (37% of $10,000) in income taxes at no income tax cost to your daughter. She can use her standard deduction of $12,950 for 2022 to completely shelter her earnings.<\/p>\n
Your family\u2019s taxes are cut even if your daughter\u2019s earnings exceed her standard deduction. Why? The unsheltered earnings will be taxed to your daughter beginning at a rate of 10%, instead of being taxed at your higher rate.<\/p>\n
If your business isn\u2019t incorporated and certain other conditions are met, your child\u2019s wages are exempt from Social Security, Medicare and FUTA taxes. Your child must be under age 18 for this to apply (or under age 21 for the FUTA tax exemption). Contact us for how this works.<\/p>\n
Be aware that there\u2019s no FICA or FUTA exemption for employing a child if your business is incorporated or a partnership that includes nonparent partners. And payments for the services of your child are subject to income tax withholding, regardless of age, no matter what type of entity you operate.<\/p>\n
Hiring your child can be a tax-smart idea. Be sure to keep the same records as you would for other employees to substantiate the hours worked and duties performed (such as timesheets and job descriptions). Issue your child a Form W-2. Contact us with questions about how these rules apply to your situation.<\/p>\n","protected":false},"excerpt":{"rendered":"
If you\u2019re a business owner and you hire your children this summer, you can obtain tax breaks and other nontax benefits. The kids can gain on-the-job experience, save for college and learn how to manage money. And you may be able to: Shift some of your high-taxed income into tax-free or low-taxed income, and Realize […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[4,3,5],"tags":[],"class_list":["post-87","post","type-post","status-publish","format-standard","hentry","category-hiring","category-payroll","category-summer-jobs"],"_links":{"self":[{"href":"https:\/\/haighcpa.maxxmoon.com\/index.php?rest_route=\/wp\/v2\/posts\/87","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/haighcpa.maxxmoon.com\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/haighcpa.maxxmoon.com\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/haighcpa.maxxmoon.com\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/haighcpa.maxxmoon.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=87"}],"version-history":[{"count":2,"href":"https:\/\/haighcpa.maxxmoon.com\/index.php?rest_route=\/wp\/v2\/posts\/87\/revisions"}],"predecessor-version":[{"id":89,"href":"https:\/\/haighcpa.maxxmoon.com\/index.php?rest_route=\/wp\/v2\/posts\/87\/revisions\/89"}],"wp:attachment":[{"href":"https:\/\/haighcpa.maxxmoon.com\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=87"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/haighcpa.maxxmoon.com\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=87"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/haighcpa.maxxmoon.com\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=87"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}