If you are in business for yourself and particularly if you are a mom who runs a home based business, you already know how much your entire family is involved in making this business a success. But, did you know there was a way to compensate your family for all of their contributions to your business and get a tax benefit from it?
Hiring your children to work for you is one of the greatest tax deductions but also one of the lesser known ones. If you have children, you know how they’ve added expenses in your life -- feeding them, new clothes, school fees, etc. and these expenses are not tax deductible in and of themselves. However, if you are running a home based business and your kids perform chores around the house that allow you more time to work on the business, that is a job that supports your business.
So how does it work?
Barack Obama made the statement, “If you think education is expensive, wait until you see how much ignorance costs.” While our commander-in-chief was not referring to the pros and cons of using a tax software versus hiring an accountant, I’d dare say his statement could not be any more true in this matter.
Why should I hire an accountant when I can buy TurboTax online, answer a few questions, upload a few documents and have my taxes tied up in a nice bow within an hour? I’m actually very glad you asked.
TurboTax and other tax softwares are great for very simplified returns. Generally for an individual who plans to take the standard deduction and has one income stream, a tax software is the best option. However, for small business owners there are three advantages to hiring a professional for your tax needs.
Are you interested in learning of an opportunity to make more money or work from home or be your own boss?? Most likely if you are on any kind of social media format or even driving down the highway these days, you’ve probably been approached by a line like that either by a friend or a stranger or a sign on the side of the street. And you may have had your interest piqued, but possibly were hesitant because you weren’t given all the facts. I can give you three reasons why adding a home based business is a wise decision.
“I admire your creativity on determining your tax deductions this year, and I’ll be sure to use the same creativity in the letters I write to you in jail.”
Certainly not the statement anyone is looking to hear from the IRS or their accountant. Generally, tax deductions swing from one extreme to the other if left up to the individual tax preparer. On the one hand, there is the fear of being overly creative like in the first example, so many will be way too conservative in claiming deductions, thereby leaving hard earned money on the table. Or there is the danger of using a little too much creativity in what you can manipulate into a deduction. Deductions can be tricky and overwhelming, so it’s best to hire a professional to help you properly navigate this territory.
Each year, tax preparers are bombarded with one particular question among many: Whom can I claim as a dependent on my tax return? The answer, though simple, is best understood by explaining personal and dependency exemptions.
The Internal Revenue Service (IRS) allows you, as a taxpayer, to claim yourself on your tax return. This is called a personal exemption. If you are married filing jointly, another personal exemption is allowed for your spouse so long as neither of you can be claimed as a dependent by another taxpayer. Additionally, you may claim a deduction for each of your qualifying dependents.