Even if you are a one-person business and have no employees I can show you how your family can become your employees and save you tax dollars.
You'll never pay your children allowance again if you hire them.
If you have a business based in your home you can hire your kids to vacuum, dust and take out the trash. As a business you can write off the costs of janitorial service.
In 2008 you can pay your children up to $5450 tax free to them and you get to deduct that amount as wages from your income.
Your child must be at least 6 years old.
Children under the age of 18 are exempt from payroll taxes and you are not required to withhold or to pay Social Security and Medicare taxes.
Your should use a formal Employment Contract to hire your family members in order to audit proof this part of your home business deductions.
The IRS stipulates that the wage-rate has to be "reasonable and customary" within your industry and region of the country for the type of work being performed in order to qualify.
So you cannot pay your kids $100 an hour for taking out the trash. How do you establish what is "reasonable and customary?" Get an outside company to give you a written estimate for the work to be performed, and then pay your family member approximately that amount. Or determine what a reasonable person might pay an employee or outside contractor for such services, and pay a similar wage to your family member.
Your employees (children) have to document what they did to earn the money, so have them fill out a simple "work log" with headings like:
Date they worked Type of work performed Amount of time spent working Hourly rate you paid them
After they turn-in their 'work log,' you then pay them by check.
You must pay your child in order to deduct the wages as a business expense but the law does not restrict how that money is used after it's paid.
The tax-deductible $5,450/year Uncle Sam lets you pay your children as employees, is equivalent to $104.80 per week!
But, you say, "Who gives their kids an $104.80/week allowance?" YOU will now! And heres why!
OK, you and your children have come up with home-business related "chores" for them to do equaling $104.80 per week. They turn in their 'work log' and you pay them by check.
Open up a separate interest bearing checking account for them to deposit and cash payroll checks. Every week you will deposit their pay check.
When you open a checking account for your child the bank will require it to be a "joint account" since he/she is a minor. Although it's a joint account only you will be able to make withdraws or write checks on the account since your child is a minor.
Now you tell your child "I will withdraw $20(for example) out of each weeks pay for you to spend any way you wish, however, the other $84.80 will stay in the (interest-bearing) account to be used by you to pay for your________."
The blank can be filled in with words like graduation trip, car, wedding...whatever you like.
You can pay for school supplies, tennis shoes, cars, trips and weddings out of pre-tax dollars! Who would have thought?
This is 100% legal and true!
You'll never pay your children allowance again if you hire them.
If you have a business based in your home you can hire your kids to vacuum, dust and take out the trash. As a business you can write off the costs of janitorial service.
In 2008 you can pay your children up to $5450 tax free to them and you get to deduct that amount as wages from your income.
Your child must be at least 6 years old.
Children under the age of 18 are exempt from payroll taxes and you are not required to withhold or to pay Social Security and Medicare taxes.
Your should use a formal Employment Contract to hire your family members in order to audit proof this part of your home business deductions.
The IRS stipulates that the wage-rate has to be "reasonable and customary" within your industry and region of the country for the type of work being performed in order to qualify.
So you cannot pay your kids $100 an hour for taking out the trash. How do you establish what is "reasonable and customary?" Get an outside company to give you a written estimate for the work to be performed, and then pay your family member approximately that amount. Or determine what a reasonable person might pay an employee or outside contractor for such services, and pay a similar wage to your family member.
Your employees (children) have to document what they did to earn the money, so have them fill out a simple "work log" with headings like:
Date they worked Type of work performed Amount of time spent working Hourly rate you paid them
After they turn-in their 'work log,' you then pay them by check.
You must pay your child in order to deduct the wages as a business expense but the law does not restrict how that money is used after it's paid.
The tax-deductible $5,450/year Uncle Sam lets you pay your children as employees, is equivalent to $104.80 per week!
But, you say, "Who gives their kids an $104.80/week allowance?" YOU will now! And heres why!
OK, you and your children have come up with home-business related "chores" for them to do equaling $104.80 per week. They turn in their 'work log' and you pay them by check.
Open up a separate interest bearing checking account for them to deposit and cash payroll checks. Every week you will deposit their pay check.
When you open a checking account for your child the bank will require it to be a "joint account" since he/she is a minor. Although it's a joint account only you will be able to make withdraws or write checks on the account since your child is a minor.
Now you tell your child "I will withdraw $20(for example) out of each weeks pay for you to spend any way you wish, however, the other $84.80 will stay in the (interest-bearing) account to be used by you to pay for your________."
The blank can be filled in with words like graduation trip, car, wedding...whatever you like.
You can pay for school supplies, tennis shoes, cars, trips and weddings out of pre-tax dollars! Who would have thought?
This is 100% legal and true!
About the Author:
Karin has owned a home business specializing in tax preparation for home based businesses for 3 decades. Her blog: Home Business Owners-Reap the Rewards offers more income tax for home business owners. She highly recommends the book 'It's How Much You KEEP, That Counts! Not how much you Make' for all her clients.
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