(ThePennyWatcher.com) – Entrepreneur or perhaps you have a growing or established business? More and more savvy tactics are being circulated around that can have some significant tax advantages for your emerging business.
Were talking about paying your children wages as part of your company, but it’s important to understand the benefits and drawbacks before making any decision.
Potential tax advantages:
Reduced Taxable Income for Your Business:
Wages paid to your child are tax-deductible business expenses for your company, reducing your taxable income and lowering your overall tax liability. This is huge, as you can meet a minimum wage requirement that both gets some work done and also alleviates what you owe Uncle Sam!
Being in a lower tax bracket puts your business in a better position and creates some real savings for your family.
Avoiding Payroll Taxes for Younger Children:
Another cool perk that you may be able to give your business is not being required to withhold payroll taxes such as Social Security and Medicare like we all are familiar with in our typical paychecks.
Teaching Financial Responsibility:
One of the greatest benefits of this nifty tax bracket shift is also built around overall responsibility, building some financial confidence at an early age for your developing kids.
Are There Any Drawbacks?
Technically there are, but we feel there are far more advantages. In some cases the business will have to pay self-employment taxes if your child is classified as an independent contractor. This typically is not the case as you can setp your child as a W2 worker.
Of course you don’t want to abuse any part of these benefits so the IRS doesn’t come knocking, but the rules are very specific so follow them to recognize the reduced income and you should be just fine.
Make sure to consult with a qualified tax advisor or accountant before implementing this strategy on your books.
A trusted friend in the business will help you understand the specific tax implications and determine the most tax-efficient approach for your family and business.
