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?
When you hire your kids, the business will pay them wages (formerly known as allowance) thus creating a business expense which is now deductible. If the child is under 18, Social Security and FICA are not required taxes for the business nor are they required to be paid by the employee. The annual maximum you can pay your children before they will have to pay taxes on their earnings is $12,000. You can hire each of your children and pay them up to $12,000 annually without paying 7.65% of taxes on the payout nor will your child have to report that level of income for the year. The $12,000 is a deductible business expense lowering your taxable income.
There is no age minimum at which you can hire your kids. One of the best jobs to hire your infant children for is social media modeling. For example, if you market your services or products on social media and your kids are in the picture displaying the product, using the product or simply drawing a target audience for your business, this is a business expense. (And if you didn’t have the cutest kids in the world, you’d have to hire someone else’s kids or use stock photos. #DoItForTheGram
As your kids get older, they can help in your business with office tasks such as filing, answering phone calls, babysitting younger siblings while you have business meetings or work quietly in your office. Your kids will most likely be more skilled with social media advertising and posting than you and they can manage your online presence for you as well. Hiring a social media team can cost your business thousands of dollars but when you hire your kids to do it, you can save time and money, but now your kids can use this income to pay for clothes, toys, and gadgets that you might buy them anyway. Hiring your children benefits your business as well as your personal savings.
The steps are simple. Set up separate bank accounts for your children’s paychecks to be deposited into. Each pay period, give them their due. Note: if you are treating your business like a sole proprietorship or partnership and your kids are under the age of 18, there is no FICA taxes to deduct or match, and taxes do not have to be withheld if they are under the $12,000 income mark. If you have an S Corp, you do have to withhold FICA taxes. There are also ways around that as well. This is huge for you and your business. So, hire your kids now!
I have six kids. If I paid them $12,000 per year (I am already spending it on them) that would be $72,000 deduction for my business and they would not have to pay taxes! Children are already a huge blessing in your life and now they can also be a huge blessing in your home based business. Please contact me with further questions about this set up or any of your other tax or accounting needs.