Earlier this year, I spoke to my chartered accountant about tax planning for the coming year. He recommended that I hire my child to do office-type tasks for my home business, and that I pay him a per hour rate. At the end of the year, I could provide him a W-2 and claim a deduction for exactly what I paid him. I got back, excited about the concept, and I described it to my child.
He was similarly thrilled, because this arrangement gives him the opportunity to earn extra money. As we’ve actually implemented this plan, I’ve actually made sure to follow the standards offered to me by the accountant. Before you employ your kid, right here’s exactly what you’ve to know:
What’s Your Business Organization?
First of all, realize that your business can not be a corporation if you wish to hire your child as a staff member to work for you without paying work taxes. If you’re a corporation, you need to double-check the applicable federal and state laws, and pay Social Security and Medicare taxes on the earnings your child earns in your business.
When hiring your kid, particularly if he or she’s under the age of 16, you’re best off if your business is a sole proprietorship, partnership, or LLC.
Essential Work and Affordable Pay
Understand that you can’t have your kid clean your workplace washroom and pay him or her $30 an hour to do so. Standards show that the work your youngster does need to in fact be vital to business. Handing out leaflets, filing, and comparable work are all acceptable. My child looks after filing and other administrative tasks that I’d need to do, however don’t need to now, because I’ve him.
I also pay him a “sensible” wage. It’s not “sensible” to pay a beginning workplace worker $30 an hour. His hourly pay is far more in line with what’s “regular” in our city for similar work.
Keep Good Records
Of course, you’ve to keep great records. Anytime you’ve a scenario where you’re doing something with taxes, you require excellent records. My son has a timesheet to fill out each time he “clocks in” for work, and I pay him every other Friday – just as I’d any other worker.
If you’ve a payroll service or software that manages your payroll, you’ve to make sure that you include your kid appropriately, and pay your youngster from that account. I pay my kid from my company account, and a few of it’s drawn away to a custodial Roth IRA, simply as if he’d a payroll reduction for a retirement plan (although this is not the exact same thing).
Hiring your kid can be a fantastic experience for both of you, and have wonderful long-term benefits for your company and your kid. Just see to it you do it right.