If you hire your children to perform bona fide work for your business, and you pay them reasonable compensation for that work, you can take a deduction for the amount you pay them.
Why it matters: As a parent, you want to give your children a head start on building a career.
- As a business owner, you want to find the best way to lower your taxable income.
- Hiring your child to work in your business can accomplish both of these goals.
The big picture: Along with being a deduction for your business, the income is shifted to a lower tax bracket, and may be tax-free if the child makes less than the standard deduction amount.
Here are a couple of guidelines to keep in mind.
- The work should be directly related to your business
- Be sure to keep a timesheet with the dates, hours, and services performed.
- You can pay your child with a check, and deposit the check in an account in the child’s name.
- This can be made into a Roth IRA, Section 529 college savings plan, or custodial account.
Get more with exclusive information from our Peden Accounting Services blog!
- Learn what ages the kiddie tax applies to, as well as how much they can make.
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