1. Understand the tax benefit.
The basic concept is simple. The taxes paid on your child's salary are typically 0% or 10%. That's likely much lower than your own, and the salary is a deductible expense for the business.
2. Pay a fair wage for real work.This strategy isn't about handing out cushy, do-nothing jobs with inflated paychecks. The IRS insists that your children's pay aligns with their duties and hours worked. Please work with your CPA and bookkeeper to maintain meticulous records of their work and pay.
3. Help manage the money.Giving your children access to a significant amount of money might seem scary. But as long as they're minors, you can retain control over their earnings by being a signer on their bank account. This way, their money is managed responsibly. Remember that you remain responsible for their basic needs like food and shelter, but many of the costs associated with your child, such as club soccer, summer camp, their first car, and others, can be covered as part of their pay. You're using pre-tax dollars to pay your child's non-essential expenses, which can lead to significant savings.
Remember: Every dollar you pay your child is a deduction for you, and, depending on their tax bracket, it may not even be taxable to them.
Whether you're looking to hire your kids, eyeing a new investment, or rethinking your real estate portfolio, you need the right advisors. Schedule a call with the team at TFW Advisors® today to see what our proven system for permanent tax reduction can do for you!