Hire your child and make it a business deduction

1. Hire your child
and make it a
business
deduction

2. HOW TO USE ◎ Child employed by parents
◎ Payments for the services of a child under age 18
who works for his or her parent in a trade or
business are not subject to social security and
Medicare taxes if the trade or business Is a sole
proprietorship or a partnership which each partner
is a parent of the child. Refer to the "Covered
services of a child" section below. Payments for the
services of a child under age 21who works for his
or her parent in a trade or business are not subject
to Federal Unemployment Tax Act (FUTA) tax.
Payment for the services of a child arc subject to
income tax withholding, regardless of age
◎ According to IRS.GOV:
◎ One of the advantages of
operating your own
business is hiring family
members However,
employment tax
requirements for family
employees may vary from
those that apply to other
employees
2

3. ACCORDING
TO IRS .GOV
◎ Covered services of a child
◎ The wages for the services of a child are subject to income tax withholding
as well as social security, Medicare, and FUTA taxes if he or she works for!
◎ A corporation, even if it is controlled by the child's parent,
◎ A partnership, even if the child's parent is a partner, unless each partner is
a parent of the child, or
◎ An estate, even if it is the estate of a deceased parent 3

4. 4
For tax year 2018-2025 the tax cuts and job acts (TCJA) states that a
taxpayer/business owner’s child(ren) under age 17 can earn up to
$12400 per year working in their parent’s business before any taxes
must be paid on the earned income in 2017 the standard deduction was
$6350 the TCJA nearly doubled it the TCJA states your child(ren) can
earn almost twice as much wage income with the increased standard
deduction that makes hiring your child (ren) a better idea than ever!
Hiring your children to work as legitimate employees in your
business has always been a great tax strategy. However,
changes in the tax laws brought about by the Tax Cuts and Jobs
Act (TCJA) make it better than ever.

5. 5
Business structure requirements to benefit from this tax strategy
As a business owner you should have proper business structure you get your
business properly structure with your secretary of state
 Sole proprietor
 Single member LLC
 Multi member LLC
 Partnership

6. 6
Is there a minimum age requirement for my child to work
for my business?
Tax law has no minimum age
• Some people are thinking that my child is to young and you have to
make sure that the position that your child close in in your company
in age appropriate and give him/her many work to do it like two
hour or 4 hour in day
• However, business owners must abide by federal and state child
labor laws to make sure your child/employee is old enough to work
in your business
• Under federal law, children younger than 16 years of age
working in nonagricultural employment in a business solely owned
by their parents, may work any time of day and for any number of
hours. ... However, parents are prohibited from employing their
child in manufacturing, mining, or in any other hazardous activity

7. 7
Once my child turns 18, can I still take advantage of this
tax strategy?
yes at 18 wages are subject to FICA at 21 wages subject to
FICA and FUTA
If you hire your children as employees to do legitimate work in your
business, you may deduct their salaries from your business
income as a business expense. Moreover, if your child is under 18,
you won’t have to withhold or pay any FICA (Social Security or
Medicare) tax on the salary, subject to a couple of exceptions.
These rules allow you to shift part of your business income from
your own tax bracket to your child’s bracket—which should be
much lower than yours unless you earn little or no income. This
can result in substantial tax savings

8. 8
W-2 employee takes

9. 9
Bonus Savings Chart Child Employee
Wages S12.000
Employee FICA (7.65% of Gross Wages) so
Net Wages to Employee Sl2,000
Employer FICA (7.65% of Gross Wages) so
Unemployment Tax so
Total Employer Tax Liability so

10. 10
Why did I make the choice to hire my child?
 Teach responsibility
 Teach my child money management skills
 Teach my child about entrepreneurship
 Generational wealth
 Business tax deduction

11. 11
1:Putting your child to work in your company gives him or her helpful
experience in the business world. This resume-type work can help
your child seek employment elsewhere after graduation if this is what
they want.
If the job you need to fill requires training, why not train your own child
to do it?
2. Tax-free income
Earnings up to the amount of the standard deduction for your child’s
filing status (typically single) are tax free. For 2018, this means that
there is no federal income tax on earnings up to $12, 000. And your
business gets to deduct the wages, which must be reasonable for the
work performed. Overall, this means more money within the family.

12. 12
Questions to Ask yourself when considering hiring your
child
 Strength
 Weakness
 Is my child presently helping me with my business?
 What is my child good at?
 Is my child interested in being n entrepreneur? career
path?

13. 13
The 10 MS
 must have a legal business structure on file with the secretary of
state
 must have an EIN registered with the IRS
 Must have biological children under 17 years of age
 Child must have their own bank account that wages are deposited
into
 Must he capable of doing the work
 Must pay child a reasonable amount for the work completed
 Must distinguish work pay from an allowance
 Must have written job description on file
 Must keep detailed records of wages paid and duties performed
 Must complete all necessary business documentation and
maintain records

14. 14
On average, how much do you spend a month on your child(ren) for things
outside of food, clothes and housing expenses?
 Acceptable Expenses
 sport camp
 Movies
 Prom expenses
 School extracurricular expenses
 Swimming lessons
 Saving or investing for retirement or starting their own
business

15. 15
Can I file my child as a dependent on my tax return after
I hire and pay them employee wages?
I am ready to hire my child (REN)
What is the next step ?
 establish business structure with secretary of state
 Business bank account
 Open your child a personal checking and /or savings account
 Employer identification number (EIN)
o www.irs.gov
o form ss-4
o 800-829-4933

16. 16
What are some age-appropriate tasks for my child to
complete for my business?
 Data entry
 Prepare mailings to clients
 Social media marketing
 Social media management
 Cleaning office space or waiting room
 Model for advertisements
 Filing paperwork
 Ordering office supplies
 Shredding paper
 Research and product testing
 Flyer and business card distribution
 Graphic or website design
 Serving clients beverages or snacks
 Answering or texting clients
 Appointment setter
 Organize mailing list
 Pencil sharpener
 And much more based on your products or services, create custom tasks.

17. How much should I pay
my child ?
We have to pay our children at least
a minimum wage
Use these website for a research
about the amount that these
individual are getting paid whether
its administrative, social marketing
manager graphic designer whatever
position it is.
 Glassdoor.com
 Payscal.com
 Vault.com
 Indeed.com
 Upwork.com
 Salary.com
17

18. 18
Employee vs Independent Contractor
• Typically employee has set hour they have set
duties and set position
• When you are independent contractor you have
more flexibility

19. 19
do I need to issue my child (ren) a form w-2 or 1099 MISC in
January
Yes
Suggested bookkeeping platform
• Quickbook.com
• Gusto.com
• Hooneybook.com

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-Having the folder for your child with all of the information that is mention
below is key
• Create a clear job description of the position and duties your child will
perform
• Create an offer letter to send to your child, offering to hire your child
• Create an employee agreement outlining the job description, date of
hire, amount of compensation and expected work hours
• Have child complete Form 1-9 and keep on file for at least three years
following the date of hire
• Have child complete Form W-4 and claim "Exempt"
• Create a timesheet for the hours your child works daily
-That is how you keep your paper trial with this strategy
hiring checklist

24. 24
create an offer letter to hire your child
-offer letter should include
• Date
• Position offered
• The amount and expected hours
• How frequent they will get paid
• Parent/ Business owner signature
• Child/ employee signature

25. 25

26. 26
Create an employee agreement
 Outline the job description
 Date of hire
 Amount of compensation
 Expected work hour

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30. 30
Form 941

31. Form 940 31

32. Form w-2 32

33. Form w-3 33

34. Sample
employee timesheet
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