Even if you are a one-person business and have no employees I can show you how your family can become your employees and save you tax dollars.
You'll never pay your children allowance again if you hire them.
Even home based businesses are allowed to write off (deduct) janitorial services. If you have a home based business hire your children to dust, vacuum and take out the trash.
In 2008 you can pay your children up to $5450 tax free to them and you get to deduct that amount as wages from your income.
A limitation is that they must be at least 6 years of age.
Hiring individuals under 18 means they are exempt from payroll taxes and you are not required to withhold or to pay Social Security and Medicare taxes.
Your should use a formal Employment Contract to hire your family members in order to audit proof this part of your home business deductions.
In order to qualify, the wage-rate has to be "reasonable and customary" within your region of the country and within your industry for the type of work being performed.
Establishing what is "reasonable and customary" can be as easy as getting an outside company to give you an estimate of what they would charge for the same service and paying your family member a similar wage.
In order to document what your children did to earn money have them fill out a "work log" with headings like:
Date they worked Type of work performed Amount of time spent working Hourly rate you paid them
Once they have filled in their 'work log' you pay them by check.
You must pay your child in order to deduct the wages as a business expense but the law does not restrict how that money is used after it's paid.
The tax-deductible $5,450/year Uncle Sam lets you pay your children as employees, is equivalent to $104.80 per week!
Pay your kid $104.80 a week in allowance??? No way you say. Not so fast. Let's look at why you might be better off paying your children rather than just giving them an allowance.
OK, you and your children have come up with home-business related "chores" for them to do equaling $104.80 per week. They turn in their 'work log' and you pay them by check.
Open up a separate interest bearing checking account for them to deposit and cash payroll checks. Every week you will deposit their pay check.
This will be a joint account since your child is a minor. Although technically this is a "joint" account, only you will be authorized to make withdrawals or to write checks on that account, since the child is a minor.
Here's where it gets interesting. You tell your child you will withdraw $15 (for example) from each week's pay for them to spend any way they wish. Tell him/her that the other $89.80 will stay in the interest bearing checking account to be used by you to pay for _______.
The blank can be filled in with words such as car, wedding, graduation trip or whatever you want.
Using pre-tax dollars for school supplies and tennis shoes, or pay for cars, trips and weddings saves money out of your budget for such things. Unbelievable!
This is 100% legal and true! - 15224
You'll never pay your children allowance again if you hire them.
Even home based businesses are allowed to write off (deduct) janitorial services. If you have a home based business hire your children to dust, vacuum and take out the trash.
In 2008 you can pay your children up to $5450 tax free to them and you get to deduct that amount as wages from your income.
A limitation is that they must be at least 6 years of age.
Hiring individuals under 18 means they are exempt from payroll taxes and you are not required to withhold or to pay Social Security and Medicare taxes.
Your should use a formal Employment Contract to hire your family members in order to audit proof this part of your home business deductions.
In order to qualify, the wage-rate has to be "reasonable and customary" within your region of the country and within your industry for the type of work being performed.
Establishing what is "reasonable and customary" can be as easy as getting an outside company to give you an estimate of what they would charge for the same service and paying your family member a similar wage.
In order to document what your children did to earn money have them fill out a "work log" with headings like:
Date they worked Type of work performed Amount of time spent working Hourly rate you paid them
Once they have filled in their 'work log' you pay them by check.
You must pay your child in order to deduct the wages as a business expense but the law does not restrict how that money is used after it's paid.
The tax-deductible $5,450/year Uncle Sam lets you pay your children as employees, is equivalent to $104.80 per week!
Pay your kid $104.80 a week in allowance??? No way you say. Not so fast. Let's look at why you might be better off paying your children rather than just giving them an allowance.
OK, you and your children have come up with home-business related "chores" for them to do equaling $104.80 per week. They turn in their 'work log' and you pay them by check.
Open up a separate interest bearing checking account for them to deposit and cash payroll checks. Every week you will deposit their pay check.
This will be a joint account since your child is a minor. Although technically this is a "joint" account, only you will be authorized to make withdrawals or to write checks on that account, since the child is a minor.
Here's where it gets interesting. You tell your child you will withdraw $15 (for example) from each week's pay for them to spend any way they wish. Tell him/her that the other $89.80 will stay in the interest bearing checking account to be used by you to pay for _______.
The blank can be filled in with words such as car, wedding, graduation trip or whatever you want.
Using pre-tax dollars for school supplies and tennis shoes, or pay for cars, trips and weddings saves money out of your budget for such things. Unbelievable!
This is 100% legal and true! - 15224
About the Author:
Karin has owned a small business specializing in tax preparation for home based businesses for 36 years. Her blog: Home Business Owners-Reap the Rewards provides more income tax for home business owners. She highly recommends the book 'It's How Much You KEEP, That Counts! Not how much you Make' for all her clients.
