Hiring your children to work in your business can be a win-win
situation for everyone. Your kids will earn money, gain real-life experience in
the workplace, and learn what you do every day. And, you will reap a few tax
benefits in the process. Before you decide if hiring your child is the right
thing for your business, learn if it can work for you.
Generally, if your child is doing a legitimate job and the pay
is reasonable for the work, his or her salary can be a tax-deductible business
expense. Your child’s income can be tax-free to them up to the standard
deduction amount for a single taxpayer ($12,000 in 2018). Wages earned in
excess of this amount are typically taxed at your child’s rate, which is likely
lower than your rate. The following guidelines will help you determine if the
arrangement will work in your situation:
· Make sure your child works a real job that he or she can
reasonably handle, no matter how basic or simple. Consider tasks like office
filing, packing orders, or customer service.
· Treat your child like any other employee. Expect regular hours
and appropriate behavior. If you are lenient with your child, you risk
upsetting regular employees.
· To avoid questions from the IRS, make sure the pay is reasonable
for the duties performed. It’s not a bad idea to prepare a written job
description for your files. Include a W-2 at year-end.
· Record hours worked just as you would for any employee. Pay your
child using the normal payroll system and procedures your other employees use.
If you have questions, give us a call.
Together we can determine if hiring your child is the right course of action
for your business and your family.
If you have questions, call
us at (219) 769-3616 or email them to tlynch@swartz-retson.com