Build Up That Work Ethic Early In Life

Author: Jenny Shilling 

Does your teenager need a job? Would you like to cut your business tax liability and get  some additional help? Then hire your child; it's an excellent way to accomplish these goals.

The IRS lets you hire your children without paying any payroll taxes as long as you own a sole proprietorship or LLC. If you pay your child $9 an hour to work for you, all it will cost you is $9 an hour. You will not have to pay traditional payroll taxes for FICA contributions, nor will you have to pay into your worker's compensation insurance fund. 

Of course, the IRS has a few rules you will have to follow when you hire your teen. The first is that they will have to work for your business. Simply paying them through your business for doing household chores will not withstand an audit. You will also have to pay them reasonable wages. Paying your teenager $100 a hour to answer the phone will be another red flag for the IRS.

Hiring your kids does more than just save you money on your payroll taxes; it can also cut your income tax liability. In the 2013 tax year, your child's first $6100 in income is tax-free since it gets covered by the standard deduction. Paying him this amount means that you take the income out of your taxable pool and put it onto his return as nontaxable income. If you put two children to work, you could shelter up to $12,200 in income a year from taxes.

With this in mind, it might make sense to fire your kids from household chores, have them work in your business and hire a maid to help with the house.

But remember, it's a wise idea to have an accountant help you plan this strategy. Contact The Tax Office, Inc. to get started on building your kids' work ethic and reducing your taxes.