Do you and your spouse own a business and have children? Why not combine the two? Not only do you get the talent you want, but you may also have tax benefits you wouldn’t get hiring non-family members. While you must hire your children to do work you would normally hire out for, you’ll benefit in several ways.
1. Pay fewer taxes
By shifting a portion of your income over to your child, you eliminate the need to pay Social Security or Medicare taxes (FICA). This only applies if your child is under 18-years old, though. Since you’re likely paying your child at home anyway, why not have them shoulder some responsibility at your business while you earn the tax benefits?
2. No FUTA (Federal Unemployment Tax)
While you can only shield yourself and your child from FICA taxes until he/she is 18-years old, you can avoid FUTA until your child is 21-years old.
3. Your Child Pays Fewer Taxes
The Tax Cuts and Jobs Act doubled the standard deduction. Essentially, the first $12,000 your child makes per year is tax free. Any income your child earns over $12,000, whether from you or another income stream, will incur a tax liability, but at a lower rate than if the entire amount was taxable.
4. You can Write off the Business Expense
If you hire your child to do legitimate work at your place of business, you can write the expenses off, just as you would any other business expenses. This lowers your own tax liability while helping tax some burden off you and giving your child a sense of responsibility.
5. You Give your Child Real-World Experience
Sure, your child can go work at the local McDonalds or grocery store, but if you run a business your child has an interest in, there may be even more value in bringing him/her on. Giving your child real-world experience differs from teaching him responsibility with chores or paying him an allowance. Working for you, your child has to abide by the same rules everyone else does – no favoritism allowed.
6. You Know What You’re Getting
Hiring new employees is scary, especially for a small business that started out as just you and your spouse. Trusting an outsider with your business is like trusting your life with a stranger. Hiring your children on provides more reassurance – you know what you’re hiring and you may feel more comfortable molding him/her into the perfect employee.
The Tax Cut and Jobs Act made it better than ever to hire your child to work for you. If you run a sole proprietorship or a partnership where your spouse is the partner, hiring your children provides tax benefits for both you and your children, decreasing the amount you pay to Uncle Sam while giving your child real-life experience.
If you want to keep the business in the family, take advantage while your child is of working age, but younger than 18-years old to reap the greatest benefits.
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