Family Payroll Perks: How Hiring Your Kids Can Lower Your Taxes!

Looking for a way to cut taxes while benefiting the whole family? Hiring your kids to work in your business can be a surprisingly effective tax-saving strategy. Here’s how bringing your children onto the payroll can benefit your bottom line—and theirs!

Why Consider Hiring Your Kids?

1. Tax-Free Income for Your Children For 2024, your child can earn up to $13,850 without paying federal income tax if this is their only income. This is an opportunity to shift some of your business’s income to your children’s lower tax bracket, reducing your overall tax liability.

2. No Payroll Taxes If your business is a sole proprietorship or a partnership where both partners are parents, wages paid to children under 18 are not subject to Social Security or Medicare taxes. This allows for additional savings on payroll taxes that typically apply to other employees.

3. Deductible Wages When you pay your children a fair wage for actual work, their wages become a deductible business expense. This reduces your taxable income while keeping wealth in the family. Whether they’re handling filing, helping with inventory, or even contributing to social media, their contributions count as legitimate business work.

4. Financial Education for Your Kids Involving your children in the family business gives them early exposure to work and money management skills, fostering financial responsibility. Earning their own money can empower them to start saving, budgeting, and planning for their future.

5. Building a College Fund or Savings Plan The wages your kids earn can go toward educational costs or personal savings goals. Setting up a Roth IRA for your child with their earned income is a tax-smart way to help them start planning for the future—even retirement!

Important Tips for Compliance

When hiring your children, the IRS expects you to follow certain guidelines to keep it legitimate:

• Pay Fairly: The work your child does must be appropriate for their age and paid at a fair market rate for the duties they perform.
• Record Keeping: Maintain records of their hours, tasks, and wages, just as you would for any employee.

At RSK TAX AND CONSULTING, LLC, we’re here to help you maximize tax-saving strategies like hiring your children while ensuring full compliance with IRS rules. This strategy can benefit your family, but guidance is essential.

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