Today TaxMama hears from Ann in the Tax Quips Forum, with a reasonable question. “A woman pays her 13 & 15 year-old children to do office copying, collating, help distribute flyers, and help put on story plays for their author parent. If she were to hire an outside service, she would pay considerably more money than the amount she pays her children. Can she write off the total paid to them, which comes to about $5K ea per year?”
Sure! But, she must document the hours (time card) or events (plays) and their specific participation. The checks must be payroll checks. They must actually be cashed or deposited to the child’s account. Payroll tax returns must be filed. The children’s wages are not subject to FICA/MediCare or FUTA. You’ll need to check your state’s rules, too.
Read Chapter 9 of Small Business Taxes Made Easy about other ways to pay the children, equitably – and how to maximize the tax benefits available when you do have your children working in your business.
There are lots of savings when the tax code is legitimately used to full advantage.
And remember, you can find answers to all kinds of questions about hiring your children and other tax issues, free. Where? Where else? At www.TaxMama.com.[Note: If you were subscribed to the e-mailed TaxQuips, you’d be getting other exciting news and tips by e-mail, that never appear on the site. Please click on the join TaxMama.com link – it’s free!]
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