Don’t want your child spending
all day watching movies and playing video games while school is out for the
summer? Then put your child to work for
your company or with your rental properties!
Make your child an official
employee of your business, and your child will qualify for the same fringe
benefits as other employees. These can
include things like health insurance, retirement plans, and education benefits.
Make sure you pay them a “fair
wage”. The IRS will challenge pay that
is excessive. So don’t pay them $25 an
hour to file papers and clean the office.
Paying your child allows you to
reduce your income that is taxed at your top rate (which can be up to 35
percent or higher with phase-outs) and transfer it to your child at their much
lower tax rate. In fact, the first
$6,100 in 2013 is tax free due to their standard deduction.
If your business is a sole
proprietorship, you won’t even have to pay Social Security or Medicare taxes
until your child is 18 years old. They
can make even more income tax free if they make a contribution to an IRA.
Your child doesn’t even have to
wait until they file their tax return to get their withholding back. When your child fills out the W-4, have them
write “Exempt” on line 7. (This only
works if your child had no tax liability in 2012 and does not expect to earn
more than $6,100 in 2013.)
If you own rental properties,
you can hire your children to maintain the properties. This can be as a regular employee, or if the
work is only small jobs (yard cleaning, grass cutting, painting, repairs,
etc.), you can pay them as contractors.
Don’t forget to issue them a 1099 if you pay them more than $600 for the
year.