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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.
If you have a business based in your home you can hire your kids to vacuum, dust and take out the trash. As a business you can write off the costs of janitorial service.
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.
Your child must be at least 6 years old.
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.
A formal Employment Contract should be used when you hire family members in order to audit proof this part of your home business deductions.
The IRS stipulates that the wage-rate has to be "reasonable and customary" within your industry and region of the country for the type of work being performed in order to qualify.
So you cannot pay your kids $100 an hour for taking out the trash. How do you establish what is "reasonable and customary?" Get an outside company to give you a written estimate for the work to be performed, and then pay your family member approximately that amount. Or determine what a reasonable person might pay an employee or outside contractor for such services, and pay a similar wage to your family member.
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.
The law requires you to pay them the wage they earned, in order for you to be able to deduct the amount as a business expense. But the law does not restrict how that money is used after it is paid!
Your children can earn up to $5,450 in 2008 which is equal to $104.80 per week.
Who would pay their kids $104.80 per week for their allowance? Maybe you will now when you see why!
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.
When you open a checking account for your child the bank will require it to be a "joint account" since he/she is a minor. Although it's a joint account only you will be able to make withdraws or write checks on the account since your child is a minor.
Then you tell your child, "I will withdraw $10 (for example) out of each weeks pay for you to spend any way you wish, however, the other $94.80 will stay in the (interest-bearing) account to be used by you to pay for your________."
Fill in the blank with words like car, graduation trip, wedding, or whatever you like.
You can pay for school supplies, tennis shoes, cars, trips and weddings out of pre-tax dollars! Who would have thought?
This is 100% legal and true!
You'll never pay your children allowance again if you hire them.
If you have a business based in your home you can hire your kids to vacuum, dust and take out the trash. As a business you can write off the costs of janitorial service.
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.
Your child must be at least 6 years old.
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.
A formal Employment Contract should be used when you hire family members in order to audit proof this part of your home business deductions.
The IRS stipulates that the wage-rate has to be "reasonable and customary" within your industry and region of the country for the type of work being performed in order to qualify.
So you cannot pay your kids $100 an hour for taking out the trash. How do you establish what is "reasonable and customary?" Get an outside company to give you a written estimate for the work to be performed, and then pay your family member approximately that amount. Or determine what a reasonable person might pay an employee or outside contractor for such services, and pay a similar wage to your family member.
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.
The law requires you to pay them the wage they earned, in order for you to be able to deduct the amount as a business expense. But the law does not restrict how that money is used after it is paid!
Your children can earn up to $5,450 in 2008 which is equal to $104.80 per week.
Who would pay their kids $104.80 per week for their allowance? Maybe you will now when you see why!
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.
When you open a checking account for your child the bank will require it to be a "joint account" since he/she is a minor. Although it's a joint account only you will be able to make withdraws or write checks on the account since your child is a minor.
Then you tell your child, "I will withdraw $10 (for example) out of each weeks pay for you to spend any way you wish, however, the other $94.80 will stay in the (interest-bearing) account to be used by you to pay for your________."
Fill in the blank with words like car, graduation trip, wedding, or whatever you like.
You can pay for school supplies, tennis shoes, cars, trips and weddings out of pre-tax dollars! Who would have thought?
This is 100% legal and true!
About the Author:
Karin has owned a home business specializing in tax preparation for home based businesses for 3 decades. Her web site: Home Business Owners-Reap the Rewards proposes 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 friends that are in business .
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