Thursday, December 29, 2011
Thursday, December 22, 2011
Hiring Children to Work for Parent's Unincorporated Business
Here is a tax-saving idea for those who operate a business as a sole proprietorship, a single- member LLC treated as a sole proprietorship for tax purposes, a husband-wife partnership, or a husband-wife LLC treated as a partnership for tax purposes. Consider hiring your under 18 child as a legitimate employee for your business. It can be part-time or full-time.
Your under age 18 child's wages are exempt from Social Security, Medicare, and federal unemployment taxes. In addition, your child can use his or her standard deduction to shelter up to $5,590 of 2012 wages from federal income tax (for 2011, the standard deduction was $5,800). Under this arrangement, your child will probably owe absolutely zero federal taxes on the first $5,590 of wages (for 2012). Your child can set aside some or all of the wages and invest the money. Hopefully, the cash stash will eventually be used to help pay for college, which means less stress for you.
Meanwhile, you can deduct the wages paid to your child as a business expense, as long as they are reasonable for the work performed. The write- off will cut your income tax bills and your self-employment tax bill (if applicable). The write- off will also lower your adjusted gross income, which will lower the odds of getting hit with unfavorable phase-out rules that can reduce or eliminate various tax brackets.
After your child reaches age 18, Social Security and Medicare taxes will kick in, however no federal unemployment tax will be due until age 21. The child's standard deduction will still shelter up to $5,950 (for 2010) from federal income tax. And, you can deduct the wages and employer's share of the related employment taxes as a business expense.
Even if your business is incorporated, hiring your child can still make tax-savings sense. In this scenario, the child's wages are subject to Social Security, Medicare, and federal unemployment taxes regardless of his or her age. The good news: The child's standard deduction still provides an income tax shelter for the child, and you can claim business deductions for the wages and employer's share of the employment taxes.
Please contact us if you have questions or want more information about this strategy!
Your under age 18 child's wages are exempt from Social Security, Medicare, and federal unemployment taxes. In addition, your child can use his or her standard deduction to shelter up to $5,590 of 2012 wages from federal income tax (for 2011, the standard deduction was $5,800). Under this arrangement, your child will probably owe absolutely zero federal taxes on the first $5,590 of wages (for 2012). Your child can set aside some or all of the wages and invest the money. Hopefully, the cash stash will eventually be used to help pay for college, which means less stress for you.
Meanwhile, you can deduct the wages paid to your child as a business expense, as long as they are reasonable for the work performed. The write- off will cut your income tax bills and your self-employment tax bill (if applicable). The write- off will also lower your adjusted gross income, which will lower the odds of getting hit with unfavorable phase-out rules that can reduce or eliminate various tax brackets.
After your child reaches age 18, Social Security and Medicare taxes will kick in, however no federal unemployment tax will be due until age 21. The child's standard deduction will still shelter up to $5,950 (for 2010) from federal income tax. And, you can deduct the wages and employer's share of the related employment taxes as a business expense.
Even if your business is incorporated, hiring your child can still make tax-savings sense. In this scenario, the child's wages are subject to Social Security, Medicare, and federal unemployment taxes regardless of his or her age. The good news: The child's standard deduction still provides an income tax shelter for the child, and you can claim business deductions for the wages and employer's share of the employment taxes.
Please contact us if you have questions or want more information about this strategy!
Monday, December 19, 2011
R. Lawrence Meck & Company Receives 2011 Austin Award
The USCA “Best of Local Business” Award Program recognizes outstanding local businesses throughout the country. Each year, the USCA identifies companies that they believe have achieved exceptional marketing success in their local community and business category. These are local companies that enhance the positive image of small business through service to their customers and community.
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