TIP #7: Hire Your Kids for Big Savings
Do you have kids? Does it seem like there is always a hand extended asking for money for this or that? Kids can be expensive. But we love our kids so we are happy to spend the money for things they want and need.
Do you catch yourself wishing you could find a pot of gold so you could help cover the costs of many of their activities? Hopefully we can show you how you can save big starting this year.
Hire Your Kids
Seriously. If you own your business, there are things your kids can do for you. Here are a few examples:
- File paperwork
- Clean the office
- Lick envelopes
- Drop off flyers or brochures
- Manage your social media
- Email clients
- Answer phones
… and much more!
If you were to put an advertisement online or in a newspaper and hire an employee, wouldn’t that be a deductible expense? Well, why not hire your kids instead. Most parents just fork over $50.00 to Jonny for his video games or $75.00 for Sara’s dance lessons.
Smart business owners realize that if their kids do necessary work for their business, they can be paid a reasonable wage and pay for things themselves. This way you get to deduct the wages. It’s the same money, only in this case you get to deduct the cost and in the other case, you pay full price! Not to mention, your kids are earning
Example: Your 16 year old daughter Sarah wants to take dance lessons that cost $150.00 per month. In the past, you have faithfully paid $1,800 a year for the lessons. But, if you hire her to file paperwork and manage your social media and pay her a reasonable wage, she can pay for her own lessons.
If she makes $1,800 that year and you get to deduct it, then you come out ahead. Let’s assume you are in a 35% tax bracket:
$1,800 x 35% tax bracket = $630 cash savings!
- Your children must be age 7 or older. The benefit here is you can hire your younger kids without worrying about child labor laws!
- You must pay them a reasonable wage. You cannot pay your kid $100/hour to do work that you could hire out for $15/hour.
- You must have meticulous time sheets and records of what they did to earn their money.
- If you pay your child more than $6,100 a year, then they must pay taxes. Make sure you set this up with an accountant to ensure you are compliant.
- They must file their own tax return (or rather you must file one for them).
The First $6,100 is Tax Free!
If your child earns less than $6,100 in 2013, they don’t have to pay any taxes because they will qualify for a personal exemption on their own tax return. If you pay them more than $6,100 in a given year, then you must pay unemployment taxes and federal and state income taxes.
Personal Story: My daughter was in college majoring in digital design. I decided I wanted to build a new website for my business and I had a professional web design firm quote me on doing the work. Their bid at the time came in at $40,000.
I approached my daughter, who definitely had the skill set to build my website (an important factor in justifying the hire), and asked her if she could build it for slightly less than the professional design firm. She agreed and I paid her enough money to cover 2 years worth of tuition and room and board!
I saved more than $15,000 in taxes by hiring my daughter rather than paying for her education outright!
Taxbot Helps You Store the Info: When payroll time comes, make sure you create a new category in Taxbot for your child’s payroll expense. Then when you pay them make sure you take a picture of their time sheet so you have a digital record you can pull if you get audited.