107. Save $1,000s per year in taxes – Hire your kids and tax-deduct their wages from your personal tax return

Hire Your Kids. If you own your own business, you can hire your family members – including young children – at a “normal” wage (age 7 and up). And not only is their pay tax-deductible for you, you can also count their wages against many costs associated with their care and upbringing. Sound too good to be true? Make sure to check it out first – tax laws change frequently, but it’s worth looking into.

The greatest tax advantages will be reaped if your company is unincorporated and your children are under the age of 18. Once your children reach the age of 18 you will no longer enjoy any of the economic advantages of hiring them.

- No employment taxes are required (Social Security and Medicare), if your business is not a corporation, otherwise you have to pay payroll taxes. Your business does not have to withhold Social Security or Medicare taxes until the child turns 18. The IRS assumes that you will foot the bill in the event of illness or injury.
- You can deduct their wages as business expenses.
- Your children don't have to pay income taxes, if their income is below the minimum.
- You can put some of their earnings aside for an IRA (check with your tax advisor to see what kind is best).
- You also do not have to withhold unemployment insurance taxes for your children, as it is expected that you will take care of your child if he loses his job.

Some basic rules to keep in mind:
- All work your children performed must be essential to the operation of the business. Another way of putting this is to say that the work must be so important that you would hire someone else to do it if you did not have a child.
- The tasks must be appropriate to both the child’s age and his skills. This means that you can hire a small child to wash a car and a teenager to program your website. Hiring a young child to work an assembly line will probably bring your company under the scrutiny of the Internal Revenue Service, and perhaps even the Department of Labor.
- You must pay your child a reasonable wage for the work performed. This means that it must be in the same range as wages that you would pay for an adult or a non-family member to do this work.
- Your child must be paid on a regular basis with a check. One lump payment at the end of the year will raise red flags.
- Treat your kid like other employees. Make sure that he punches a clock, attends mandatory training and does everything else that workers in your employ are required to do.
- Keep records. If the IRS decides to audit you, having detailed records verifying your child’s work will be invaluable.

This combined effect is that you do not have to pay anything in the way of payroll taxes for your children. Your children will also benefit from this arrangement by being able to keep more of what they earn.

You can have your children do jobs at home and tax-deduct the wages from your personal tax return. Also check out idea nr. 87: $$$ Earn $1,000+ per month – Do service-at-home jobs

A Win-Win Situation

Hiring your own children for a tax break might appear exploitative at first glance, however nothing could be further from the truth. Not only do your children benefit by avoiding paying FICA taxes, they get valuable work experience at the same time. For those who wish to pass their business along to their children upon their retirement, hiring your kids is a way to save money on taxes and provide them with a working knowledge of your business.

Discuss with your tax adviser how to hire your kids to do jobs at home while reducing your taxes.

Also check out idea nr. 90: $$$ >> Make $2,000+ per month – Become an Make-Money-Become-Millionaire consultant!

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