Can I Hire My Kids?
For most business owners, there is always a blurred line between your personal life and your business life. Despite your best efforts (or because of them) your children often end up getting involved somehow. But let me ask you a question: is your child better at Instagram, Facebook, and other social media platforms than you? What would you have to pay an outside firm to get monthly help on those platforms? For most of us, I think the answers to these questions make hiring your children a very attractive option. So, the question then becomes when can you hire your children in the family business and how do you document this when it comes to filing your taxes?
By placing children (or even grandchildren) on the payroll who are under the age of 18, you can create a great opportunity to take advantage of something called income shifting. Your company can hire each child for $6,300 in 2015, and in the majority of cases neither you nor your household will pay federal taxes on these wages. You’ll still have to pay Social Security and Medicare, but the federal tax savings should outweigh that cost for most small business owners.
Related: See Ted on this month’s Business Mentoring Show
If you’re familiar with me, you’ll know I’m a huge advocate of detailed documentation—and this is no different. Set up an employee file just as you would for any other employee in your business and write a one page job description. You can pay your child market rate wages through your normal company payroll. This can work well for a summer job or after school job depending on their overall situation. And, the best part, since they will get a standard deduction for the $6,300 of income, they (and you) will essentially pay no federal income taxes because you’ll get a deduction off the business and they will use up their standard deduction.
Once you pay the child, you can use the ‘net’ proceeds for a number of different ideas. You could just save the money in an account for college education, but you should be wary about how this will affect future FAFSA (Free Application for Federal Student Aid) forms. You could also set up a Traditional IRA or Roth IRA since we all know Social Security may or may not be there for our kids. Lastly, you could use this as an “allowance” so they don’t keep hitting you up for movie, dining out, or technology costs.
Generally, fourteen is the minimum age of employment underneath the Fair Labor Standards Act. However, there are some blanket exemptions to the FLSA allowing those under 14 years of age to work. You should take a closer look into these if you want to add your 11 or 12 year old to your team, and consider that there are children around the world getting Microsoft certified at even the age of 10.
As you are planning your family finances, hiring kids in the business should certainly be a discussion you entertain no matter how large or small the business is currently. It may just be time to put those kids to work!
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