The IRS allows business owners to pay each kid up to a certain amount every year and get a full deduction for the costs. Depending on your tax bracket, the kids may get away without paying any taxes on their income, either.
Keep in mind:
Children don’t have to be dependents, and there are no age limits.
Salaries must not exceed the annual threshold to avoid any federal taxes, but they still have low tax brackets after this, beginning with a 10% bracket.
They must do real, age-appropriate work.
The last point there is critical. You can’t just write a check without clear documentation of what they actually provided. As smart as your 9-year-old may be, the IRS probably won’t buy it if you paid them for detailed financial analysis. Find real work they can do like:
Cleaning offices
Simple data entry
Transcription services
Running social media
Tom knew a guy who had a traditional publishing business with a young son who had a passion for new technology and programming. His dad paid him; he helped bring the business to the next level, and they saved on their taxes.
The trick is remembering that this is a real business decision, not a loophole. You still have to decide how you’ll pay them (typically it is as an employee), set it all up with your accountant, and walk through a plan. The tax savings come, but only when you have a real strategy in place.
It’s daily tax planning for long-term tax reduction.
Want to learn more about how you can make way more money and pay way less in tax? Book a call with the team at TFW Advisors® today!