What could be better than cutting your annual tax liability using the IRS’s own tax codes? (Source: Publication 929 (2018), Tax Rules for Children and Dependents)
What about the added bonus of helping your child develop a strong work ethic, limitless thinking, and the value of being an entrepreneur? All while they earn some spending money AND start saving for college or that first business. And it’s all tax-free.
The benefits of hiring your children in your business for virtually tax-free payouts is worth serious consideration.
But we have found that with our clients (successful business owners with an average personal income of over $500,000), the hardest part is not the actual hiring, that’s easy with a little guidance… It’s finding legitimate jobs and services, that can be paid at standard and comparable rates.
Well, we have compiled a list of 32 different “jobs” you can have your children perform for your business. The best part is, these services can carry a very high earnings rate.
You don’t have to pay “sub wages,” or pay tax on helping your child learn valuable work ethics.
As long as they’re doing legitimate work for your business, you can hire your child and pay them up to $12,000 per year tax-free.
If they stay under this limit, they usually don’t even have to file a tax return, which means they don’t pay any income tax on it. And you get to deduct their wages, which lowers your business’ taxable income.
IMPORTANT DISCLAIMER: While this article uses the education garnered from years of client work and our extensive network of CPAs, lawyers, and advisors, please take this article and the PDF to your accountant or Wealth Factory advisor to implement a solid plan to legitimately lower your tax liabilities. This is not intended to be advice from a CPA or client advice. This article is meant to arm you with suggestions that many will overlook.
Example: Let’s say you have 3 kids, and you hire two to work in your business.
Using this strategy, rather than just “handing over money” or allowance you likely paid personal taxes on, you’ve moved those taxable dollars from your tax rate, to your child’s tax rate and bracket, which in most cases, is zero, and you still keep the money in the family.
This is called “Tax Bracket-Shifting.”
In the above example, you could have lowered your personal income by up to $24,000, all while teaching your family some well-timed lessons.
I’m using this strategy right now with my two boys. As I’m writing a finance book for kids, I’ve hired them to read it and give me feedback. It has been worth every penny!
I’ve had clients who were dentists pay their kids to model for photographs to be used on their website or brochure. It’s easy to document an “image agreement” that pays a licensing right ongoing.
While this may seem “old hat,” many business owners hire younger children for janitorial duties.
There are countless jobs kids can do for you, and remember, you can pay them at the SAME RATE you would pay any other employee or outsourced company.
Here are just a few simple ideas to get you started:
Note: For the complete list, download your copy of the complete PDF
The options are virtually limitless, but to avoid IRS scrutiny, make sure it’s a job that’s age-appropriate and your child can do sufficiently.
If your kids are like mine, they are going to love getting their hands on some spending money.
But more importantly, the money will mean much more because they earned it!
You’re the parent, so it’s smart to make sure that the money isn’t all spent on video games and mobile apps. (the first couple checks usually get tossed to the wind, but after that, help them buckle down)
Remember, because this is an ongoing job, at just $12,000/yr, that’s $1,000/mo. For younger kids, this can add up quickly.
Your children can put most of their money in a college savings account, which helps them learn the value of saving. You could do the same, or even help them start what I call a Wealth Capture account, which is an automatic savings account where money is put aside to invest or start a business one day.
Use this strategy wisely, and you’ll give your children a valuable head start on life.
Build the life you love,
Founder and Chief Wealth Architect
The bones of this article were originally published on Forbes.com, and we’ve republished and updated it here to provide additional examples and resources for you.