Are you looking for ways to teach your children about money management and instill a strong work ethic in them? One effective method is by offering them employment within your business. Not only will this provide valuable skills, but it also comes with tax benefits that you can capitalize on.
Here are some key points to consider when employing your child:
- Tax Deductions: According to the IRS, employing your child allows you to deduct their wages as a business expense, reducing your taxable profit. Additionally, wages paid to your child are exempt from social security, Medicare, and FUTA taxes.
- Lower Tax Bracket: Since your child will likely be in a lower tax bracket than you, they will pay less tax on their income.
- Federal Income Tax: You can pay your child up to $14,600 per year without subjecting them to federal income tax for 2024. If they have other income, they may still need to file a tax return if they exceed the filing threshold.
However, there are rules to follow:
– Legitimate Employee: Your child must be a genuine employee, performing actual work for the business – not just household chores or errands.
– Record Keeping: Maintain accurate records of their employment, including timesheets and payments, to prove to the IRS that their wages are reasonable.
Encourage your child to make the most of their earnings by helping them start saving for retirement or education. Investing in retirement accounts or education savings plans can set them up for a secure financial future.
Beyond the tax advantages, employing your child has numerous benefits:
– Skill Development: Your child will learn about responsibility, time management, and the importance of hard work.
– Pride and Accomplishment: They will feel a sense of pride and achievement in contributing to the family business.
Considering all these advantages, employing your child can be a rewarding experience for both you and your child. It not only benefits your business but also serves as a valuable lesson in work ethic and financial responsibility.
If you own a business, why not explore the option of employing your child and leveraging the associated tax benefits? It could prove to be a valuable learning opportunity while also providing financial advantages. And with services like TurboTax Live Business, you can receive expert assistance with your taxes, ensuring you maximize your returns and stay compliant with tax regulations.
