Can Your Kid Help Reduce Your Taxes?
4 March 2010No matter how pragmatic and heartless that might seem, you can use your children to pay less taxes to the IRS. If you’re a self-employed or you run a small business all you have to do is to literally put your child to work and obtain tax deduction for that.
It doesn’t matter if they answer the phone, cleaning, administrating/updating the
company’s website, managing data entries or they do research as long as you pay them a salary. This actually translates into: the money you’d have to pay/earn anyway to get that job done would normally either go in your pocket and get taxed, either go to another person who’s not part of your family; in this case you keep the money in your family circle, you forget about the “pocket money” and you move the income from your tax rate to your children’s. your children’s tax rates start at 0% and it stays at this level for the first $5,450 – quite a win, right?
Moreover, there are no Social Security or Medicare taxes to pay for the wages you pay to your children. What can you do further for your child? You can create a Roth IRA and contribute there the many you’d pay him with. The main condition is that he won’t be able to retire that money before he/she’s 60, but the amounts contributed are tax-free.
You may be wondering what’s happening with the payroll taxes. Well, you might be responsible for them, but it probably totals 15%. Anyways, there are some exceptions for this rule, but they’re specific to each case, so it’s better to talk to a specialist in accountancy about it. Another reason for getting advice from an expert is to be sure you’re not violating any child labor laws.
