As a parent, I’m always looking for ways to help increase my children’s financial education. As a tax advisor, I’m always looking for ways to reduce taxes. As a result, I have lots of ideas about how to involve children in a tax strategy.
One of my favorite ways is to have your business hire your children. I did this from a very young age in my family’s business and many of the lessons I learned then are still with me today.
The first thing to look at is what your children can do in your business.
There are lots of tasks children can do:
– Filing
– Cleaning
– Answering phones
– Running errands
– Data entry
– Maintaining the company’s online presence
– Updating the company website
– Research
As you can see from this short list, the tasks can range from simple to complex depending on your children’s skill set. The more advanced your children’s skill set, the more valuable your children become to the business and the more your business can pay them.
When your business pays your children, this is money that your business would usually:
– Distribute or pay to you, or
– Pay to another employee to do the tasks
If the money is distributed or paid to you, it is taxed at your individual tax rate. If the money is paid to another employee, then that money is leaving your family circle and can no longer work for you and your family.
Having your company hire your children keeps the money in your family and shifts the income from your tax rate to your children’s tax rates.
Your children’s income tax rates start at 0%. This means if you are in a 30% income tax rate, then paying your children allows you to take advantage of your children’s lower tax rates.
Your business and your children may be responsible for payroll taxes, which is approximately 15%. Don’t forget to factor this in when you are calculating how much you save in taxes by hiring your children. Also, keep in mind that there are exceptions to this rule. These exceptions exempt some businesses from having to pay payroll taxes on wages paid to children of the owners. The rules are very specific to each situation so be sure to discuss this with your tax advisor.
Getting your children in the game and on your payroll provides many opportunities to reduce your taxes. Even more exciting is what your children can do with this money to put their money to work.
Focus on your wealth!
By: Tom Wheelwright – Tom’s firm provides my tax advice and wealth planning. I encourage you to check out ProVisionWealth.com