Are you the owner of a sole proprietorship or single member LLC, or involved in a partnership with your spouse? If so, and your children are biological for you and your spouse of a partnership, you might want to consider hiring them in your business.
One of the benefits of doing so is that they can earn up to the standard deduction of $12,550 currently for 2021 without having a tax liability. They also would not be subject to social security, Medicare, or federal unemployment taxes. And in most states, they also would not be subject to the unemployment state taxes.
Of course, talk to your tax preparer to make sure that these rules apply to you, but by doing so, you’ll have the tax write-off for the salaries paid. Your child will earn money that could be put away for their future, or even a little spending cash that they might want to have. And you also are giving them job skills that they can use for future employment.
Now, keep in mind, they must be performing duties that are relevant to their age, and you would pay them compensation that’s reasonable if you were paying someone else to do so. For instance, they might help answer the phones and do customer service. They could scan documents or shred them. They might be able to do some basic work in your business, or if in manufacturing, help with some of those duties as well. But keep in mind, they must be able to perform the duty safely and effectively.
You don’t have to pay the minimum wage to your children in most cases, so you don’t have to worry about the changing minimum wages in your state as well. But once again, double check your rules that apply in your state as well as what’s available to you in the federal government, as often states have more stringent requirements than the federal government does.
If you have questions regarding this, feel free to give us a call at (310) 534-5577, or email us at [email protected]. And of course, if you want to know how this will affect your business deductions and tax liability, be sure to chat with your CPA as well.
