Putting it Together Blog | family business

When Hiring The Kids Makes Business Sense

Posted by Jenny Shilling on Wed, Nov 28, 2012 @ 08:11 AM

Family Businesses Offer Tax Incentives

Family businesses come with a lot of advantages. In addition to providing unique marketing opportunities and fostering a sense of responsibility in your children, it also makes good business sense. The key is to hire your kids while they are young; they learn some valuable lessons, and you get a tax break.

That's right, you get a tax break for hiring your own children. Here's what you need to know:

Your business must be unincorporated, which means entities such as sole proprietorships, partnerships and LLCs are eligible.
Your child must be under the age of 18.
The job they do must benefit the business. Basically, they can do any task that you would pay another person to do, whether it's packing shipments, running errands or cleaning the floors.
You must pay them a reasonable wage for the tasks they perform and this wage must be consistent with what you would pay somebody else. Paying excess wages for menial tasks is not a good idea.
You should pay your child regularly, just as you would any other employee. Paying them a lump sum at the end of the year raises a red flag with the IRS.

The reason that hiring your children makes such good business sense is that you gain the following tax benefits:

You can pay up to $5,950 with no tax liability for either of you.
You can deduct these wages as a legitimate business expense.
Your child can fund an IRA and increase their earning potential for the year. In addition to building their retirement savings, they will be able to earn an additional $3,000 beyond the $5,950 limit.

It is important to know that your child will likely have to have federal income taxes withheld, but they will get it back after filing their tax return for the year. Work with a qualified tax professional to make sure you follow all the rules and make the most of this benefit.

The Tax Office Inc. can help you identify other sources of tax savings for your business. Put our business sense to work for you; contact us today to schedule a meeting.

Common Tax Errors Family Businesses Make

Posted by Keith Huggett on Mon, Oct 8, 2012 @ 09:10 AM

Meeting the Challenge Head On

Running a family business can be both fun and challenging. One of the challenges you face is proper financial and tax planning. A family business faces the same rules and requirements as any other business, but because the people involved also have a personal relationship, some business best practices can get overlooked.

Watch for these common errors that many family businesses make:

Don't mix business and family finances: Setting up a separate business entity and bank account is important for keeping business expenses separate from personal ones. The type of business entity you select will depend on how many people own the business and how you want your taxes to be handled. Setting up a separate business will also help protect you from personal financial liability that stems from the business.

Make sure you implement employment agreements: Every employee, even family members, should have an employment agreement in place. This not only helps keep a level playing field among all the employees, but also helps guide you in the future when circumstances may change.

Procure and maintain a business license: Depending on the type of business you have and where your facilities are, you may need a business license from local or state authorities. This is true even if you operate from a home office.

Have a succession plan: All businesses should have a succession plan in the event that an owner becomes incapacitated or passes away. In a regular business, the line of succession might be clear based on titles and seniority. However, in a family business, this can be even more confusing because business successors are also simultaneously heirs. Having a clear plan in writing is the best way to avoid disputes and keep the business running smoothly.