Hire Your Kids- Tax Strategy
Shift Income from Your Tax Bracket to Your Childs (which can be minimal or nothing)
Hiring your children as employees in your small business can be a tax strategy because it can potentially allow you to shift income from your tax bracket to your child's tax bracket, which will likely be lower. However, it is important to note that there are rules and restrictions that apply when hiring a child as an employee.
Here are some things to consider:
The child must be a legitimate employee: To qualify as an employee, the child must perform actual work for the business and be subject to your control and direction. The work must also be age-appropriate and not hazardous.
The child must be paid a reasonable wage: The child's wages must be reasonable for the type of work they are performing and must be comparable to what other employees in similar positions are paid.
The child must pay taxes on their earnings: Just like any other employee, the child must pay federal income tax, Social Security tax, and Medicare tax on their earnings. However, if they are under 18 they pay no taxes on income under $12,950 (2022 limit for single tax payers).
It is important to consult with a tax professional before hiring your child as an employee to ensure that you are complying with all relevant tax laws and to determine if this is a viable tax strategy for your situation.
Then you can put their income into an investment account for kids and really set them up to become wealthy. Check out details on that here.
