Learn how to pass on more of your wealth to your heirs and pay less to the government before it's too late! Click here...

Address & Map

(602) 264 - 9331

CLIENT PORTAL

Address & Map

(602) 264-9331

Children Employed by Parents who own a business

by | 52 tax Tips and Weekly Financial Blog for 2023

[DISPLAY_ULTIMATE_SOCIAL_ICONS]

 

While rolling out a roadmap for their future professional growth, employing children in your
own business also works to your advantage from the tax perspective. As a self-employed
business owner (sole proprietorship), paying wages to a child can be an effective way to shift
income from the taxpayer who owns the business to the child, who usually is in a lower income
bracket.

Jamie, proprietor of a small bed and breakfast, and a mother, employed her daughter, Devin, in
her business. This way she could not only help her daughter understand her finances well and
make her literally work for it, but this move also helped both mother and daughter in saving
taxes.

It may even be possible to escape taxes completely on wages paid to the child. The child can
contribute to a retirement plan and may be able to take a tax credit for education expenses. Make
sure the employed child serves a genuine purpose working for the parent.

The child could perform an administrative or small function in the parent’s business. This way
the wages paid would be a legitimate expense of the business. You need to make sure that you do
not violate any child labor or minimum wage laws. Always be sure to keep track of your
children’s time while working for you. The presence of a completed timecard or time record is
the BEST way to help prove when and how long your child worked for you or your company.

When the employer is in a sole proprietorship and the child is under the age of 18, there is no
social security tax to be withheld. Each year the amount the child can earn without paying ANY
taxes varies. And any wages paid by the parent-owner of a sole proprietorship to the child, is a
business expense for the owner. Be sure to see your tax professional, if you own your own
business and have children, to discuss the benefits of paying wages to your children.

Paying children allows the business to pay fringe benefits for the child through the business as
well. Benefits covered could be health insurance, college education, retirement contributions,
business trips and more. Your tax professional knows these rules, limitations and the many
benefits there are to hiring your children.

Here are some of the benefits of parents employing children:

  • No FICA Tax on child’s wages up to 18 years old (Saves thousands of dollars annually for
    parents who pay children)
  • No Federal Income Tax on child’s wages up to the standard deduction (Again, this can
    save both parents and children from paying hundreds or thousands in taxes, per child, each
    year)
  • Ability to contribute to child’s retirement (Children who get paid can contribute into an
    IRA each year)
  • Ability to claim travel and employee benefit expenses for the child from the business.
  • Ability to pay for health expenses and insurance through the company.
  • Stay within all child labor and minimum wage laws (Check with Azmoneyguy or your tax professional for the rules)
  • Always keep a completed timecard or record of when and how long the child worked
    for you or your company, and a description of their duties performed.

 

Call today, don’t delay! See how this affects you. We can be reached at 602-264-9331 and on all social media under azmoneyguy.

Related Blog Posts

Financial Planning and Fiscal Fitness

Financial Planning and Fiscal Fitness

Learn how to pass on more of your wealth to your heirs and pay less to the government before it's too late! Click here...Address & Map(602) 264 - 9331CLIENT PORTALAddress & Map(602) 264-9331[DISPLAY_ULTIMATE_SOCIAL_ICONS]   Unbelievably, everybody can...

read more
The Taxpayer Advocate Service (TAS)

The Taxpayer Advocate Service (TAS)

Learn how to pass on more of your wealth to your heirs and pay less to the government before it's too late! Click here...Address & Map(602) 264 - 9331CLIENT PORTALAddress & Map(602) 264-9331[DISPLAY_ULTIMATE_SOCIAL_ICONS]   You should know that you have...

read more

Do You Owe The IRS?

Learn 5 Secrets The IRS Doesn’t Want You To Know.

Click on the button below to get FREE access to this exclusive content.  

Get Expert Tax Advice from an expert

Mr. Hockensmith has been a guest newscaster for national and local TV stations in Phoenix since 1995, broadcasting financial and tax topics to the general pubic. He has written tax and accounting articles for both national and local newspapers and professional journals. He has been a public speaker nationally and locally on tax, accounting, financial planning and economics since 1992. He was a Disaster Reservist at the Federal Emergency Management Agency, for many years after his military service. He served as a Colonel with the US Army, retiring from military service after 36 years in 2008. Early in his accounting career, he was a Accountant and Consultant with Arthur Andersen CPA’s and Ernst & Young CPA’s.

Build strategies, build confidence, build your business.

We are ready to do business with you

E

Tel: (602) 264-9331 (24x7)

E

Address:

3404 West Cheryl Drive
Suite A-170
Phoenix, AZ, 85051

E

Follow Us...

                           

E

Leave a Review...

                        

E

Follow Us...

                           

E

Leave a Review...

      

Get in touch with us

14 + 7 =

Clients Don’t Buy Hours, We Don’t Sell Time.

Clients Buy Knowledge, Clients Pay For Value.

-Robert Hockensmith CPA, EA

Tax Tips and Financial Blog

Tax Return Corrections and Tips for next Tax Year

www.AZMONEYGUY.com(602) 264-9331 Call 24x7Blog [DISPLAY_ULTIMATE_SOCIAL_ICONS] While the freshness of the New Year can still be felt in the air, let’s start talking about preparing for the upcoming tax season. Dave and Julia know that preparedness always helps them in...

read more

Paying Income Taxes and Estimated Taxes

www.AZMONEYGUY.com(602) 264-9331 Call 24x7Blog Paying Income Taxes andEstimated Taxes[DISPLAY_ULTIMATE_SOCIAL_ICONS]   Paying Income Taxes and Estimated Taxes The tax season is almost ending, and like any other law-abiding, taxpaying citizen of the country, Chris...

read more