What Can Your Children Do For Your Business?
As a parent, I'm always looking for ways to teach my children life long lessons about money. One of the best teaching tools I have found is money! What I really like about money as a teaching tool is not only its effectiveness in teaching my children, but also its effectiveness in reducing my taxes!
In a recent article, I asked you to think about this question:
What Tasks Can Your Children Do For Your Business?
What tasks did you come up with? Here are some of the more common tasks:
- Answering phones
- Running errands
- Data entry
- Maintaining the company's online presence
- Updating the company website
As you can see from this short list, the tasks can range from simple to complex depending on your child's skill set. The more advanced your child's skill set, the more your child can earn - keep reading to find out why this is a good thing!
- How To Legally Reduce Your Taxes By Hiring Your Children -
When your company pays your children, this is money that your company would usually:
Distribute or pay to you, or
Pay to another employee to do the tasks
If the money is distributed or paid to you, it is taxed at your individual tax rate. If the money is paid to another employee, then that money is leaving your family circle and can no longer work for you and your family.
Having your company hire your children keeps the money in your family and moves the income from your tax rate to your children's tax rates.
Your children's tax rates start at 0%. This means if you are in a 30% tax rate, then paying your children shifts income from your 30% tax rate to your children's 0% tax rate and you reduce your taxes!
- Your Children's Tax Rates -
The first $5,450 of earned income to each child is taxed at 0%. What happens if your children earn more than this amount? You may still save taxes because your children also have 10% and 15% tax brackets. This provides great opportunity to shift your income to a lower tax bracket!
What about payroll taxes?
Your business and your child may be responsible for payroll taxes, which total approximately 15%. Don't forget to factor this in when you are calculating how much you save in taxes by hiring your children.
However, there are exceptions to this rule. These exceptions exempt some businesses from having to pay payroll taxes on wages paid to children of the owners. The rules are very specific to each situation so be sure to discuss this with your tax coach.
Getting your children in the game and on your payroll provides many opportunities to reduce your taxes. Even more exciting is what your children can do with this money to put their money to work.
Tom Wheelwright is not only the founder and CEO of Provision, but he is the creative force behind Provision Wealth Strategists. In addition to his management responsibilities, Tom likes to coach clients on wealth, business, and tax strategies. Along with his frequent seminars on these strategies, Tom is an adjunct professor in the Masters of Tax program at Arizona State University. For more information please visit http://www.provisionwealth.com