Hiring your children (ages 7 to 18) to work in your business can benefit your children, teaching them responsibility, dealing with customers, and financial matters. It can also benefit them by providing money for their personal spending and saving. But having your children can also help your small business in several ways:
- You don't have to pay them employment taxes (Social Security and Medicare), if your business is not a corporation
- You can deduct their wages as business expenses, thus reducing your profit and tax liability
- Your children don't have to pay taxes, if their income is below the minimum.
- You can put some of their earnings aside for an IRA (check with your tax advisor to see what kind is best)
The requirements for having this arrangement accepted are:
- Your business cannot be a corporation, but it can be a sole proprietorship, an LLC, or a partnership.
- The work done by your children must be necessary and essential to your business. They can't clean the bathrooms in your office (not essential), but they could do filing or handing out flyers.
- You must pay them a reasonable amount for the type of work. If you don't want them to have all that money, put it in a savings account and use it to pay for things they need, like clothing or school supplies.
- You must keep good records. Give them a paycheck like all your other employees, record how the pay was determined. If you have a separate payroll account, pay them from this. Don't just give them cash.
In other words, treat your children the same as you would other employees (less the employment taxes), keep records, and use their pay for things they need. Oh, and don't forget to give them some of the money to spend. It works for children as with others - you have to pay them to get them to work.
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