Business owners who have children under the age of 18 may be able to save between approximately $5,000 and $15,000 annually on taxes by employing their young children.
How does this strategy work?
- You can hire your children to do age-appropriate work at your company.
- As long as you pay your children a fair-market salary at or under the standard deduction rate for single taxpayers, they do not have to pay federal income tax (assuming they have no income from other sources), social security, or Medicare taxes.
- Your business takes a deduction.
- As a parent or legal guardian – you can administer your child’s bank account and use their income for any child-related expenses you are already making (books, clothing, school tuition, college fund, an IRA, educational trips, or an allowance).
- Your child’s federal tax rate will be 0% – yours may be 37% (or more in the near future!).
- This strategy comes with several caveats – we will be happy to show you how to implement it correctly and how to stay compliant with IRS regulations.
This is just one way tax reduction planning can have a tangible impact on your bottom line, and why it makes sense to consult with a tax reduction planning strategist, such as Ratio CPA – even if you already have an accountant or CFO.
If you’d like to find out more about Ratio CPA’s tax planning and CPA consulting offer, or see if anything can be done to lower your business and individual taxes, we’d be happy to schedule a complimentary and no-strings call and document analysis with you.