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.
Your children can earn a paycheck from you rather than you paying them an allowance.
Even home based businesses are allowed to write off (deduct) janitorial services. If you have a home based business hire your children to dust, vacuum and take out the trash.
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.
A limitation is that they must be at least 6 years of age.
Children under the age of 18 are exempt from payroll taxes and you are not required to withhold or to pay Social Security and Medicare taxes.
In order to audit-proof this aspect of your home-business deductions, use a formal Employment Contract to hire your family members.
In order to qualify, the wage-rate has to be "reasonable and customary" within your region of the country and within your industry for the type of work being performed.
Establishing what is "reasonable and customary" can be as easy as getting an outside company to give you an estimate of what they would charge for the same service and paying your family member a similar wage.
The kids (as employees) have to document what they did to earn the money, so have them fill out a simple "work log" with headings like:
Date they worked Type of work performed Amount of time spent working Hourly rate you paid them
After they turn-in their 'work log,' you then pay them by check.
You must pay your child in order to deduct the wages as a business expense but the law does not restrict how that money is used after it's paid.
The tax-deductible $5,450/year Uncle Sam lets you pay your children as employees, is equivalent to $104.80 per week!
But, you say, "Who gives their kids an $104.80/week allowance?" YOU will now! And heres why!
So let's presume you have come up with the tax-free limit of $104.80 per week in home-business related "chores" for them to do. At the end of the week they will turn in their 'work log' and you'll 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.
Here's where it gets interesting. You tell your child you will withdraw $15 (for example) from each week's pay for them to spend any way they wish. Tell him/her that the other $89.80 will stay in the interest bearing checking account to be used by you to pay for _______.
The blank can be filled in with words like graduation trip, car, wedding...whatever you like.
Did you ever, in your wildest dreams, anticipate that you would be able to pay for school supplies and tennis shoes, or pay for cars, trips and weddings out of pre-tax dollars?
Its true! Its real! And its 100% legal! - 15478
Your children can earn a paycheck from you rather than you paying them an allowance.
Even home based businesses are allowed to write off (deduct) janitorial services. If you have a home based business hire your children to dust, vacuum and take out the trash.
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.
A limitation is that they must be at least 6 years of age.
Children under the age of 18 are exempt from payroll taxes and you are not required to withhold or to pay Social Security and Medicare taxes.
In order to audit-proof this aspect of your home-business deductions, use a formal Employment Contract to hire your family members.
In order to qualify, the wage-rate has to be "reasonable and customary" within your region of the country and within your industry for the type of work being performed.
Establishing what is "reasonable and customary" can be as easy as getting an outside company to give you an estimate of what they would charge for the same service and paying your family member a similar wage.
The kids (as employees) have to document what they did to earn the money, so have them fill out a simple "work log" with headings like:
Date they worked Type of work performed Amount of time spent working Hourly rate you paid them
After they turn-in their 'work log,' you then pay them by check.
You must pay your child in order to deduct the wages as a business expense but the law does not restrict how that money is used after it's paid.
The tax-deductible $5,450/year Uncle Sam lets you pay your children as employees, is equivalent to $104.80 per week!
But, you say, "Who gives their kids an $104.80/week allowance?" YOU will now! And heres why!
So let's presume you have come up with the tax-free limit of $104.80 per week in home-business related "chores" for them to do. At the end of the week they will turn in their 'work log' and you'll 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.
Here's where it gets interesting. You tell your child you will withdraw $15 (for example) from each week's pay for them to spend any way they wish. Tell him/her that the other $89.80 will stay in the interest bearing checking account to be used by you to pay for _______.
The blank can be filled in with words like graduation trip, car, wedding...whatever you like.
Did you ever, in your wildest dreams, anticipate that you would be able to pay for school supplies and tennis shoes, or pay for cars, trips and weddings out of pre-tax dollars?
Its true! Its real! And its 100% legal! - 15478
About the Author:
Karin has owned a home business specializing in tax preparation for home based businesses for 36 years. 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 customers.
