Reasons to hire your childSubmitted by Financial Planning Solutions, LLC on June 13th, 2019
It's summertime and classes are over for college students and high schoolers are wrapping up their exams. Many kids already have jobs for the summer, but if yours doesn’t yet, you might want to consider hiring them yourself. There are many good reasons to hire your child this summer:
Working now is good preparation for the real world
The first job is a great place to learn how to be responsible for showing up on time, proper workplace etiquette, interacting with a boss and being responsible. Having a job is a lot different than going to school and attending classes. Working now can allow your son or daughter to get a head start on honing their workplace skills which they’ll need when they land that first “real” job after college.
Save a bundle on taxes
If you hire your children to work in your business, you may be able to deduct their salaries from your income as a business expense. In addition, because most children don’t earn much at their summer job, their income is low and may not owe any federal income taxes. Another benefit is if your child is under 18 and you are a sole proprietor or the owner of an LLC, you may not need to withhold Social Security or Medicare taxes.
Help them use their paychecks wisely
Those first paychecks allow your child to make responsible decisions with their money. They have to learn sometime and it is better that they learn while you are around before they are out on their own. It can be hard to do, but let them spend some of their earnings on things they want. Help them learn how to shop for the best value and compare prices at different stores to get the best price. Parents tend to take these skills for granted because they use them every day. This may be all new for your son or daughter. Give them a hand with making smart financial decisions and that includes saving most of their earnings for college or when they are out on their own.
Paychecks are tax deductible
As with any other qualified business expense, paychecks to your son or daughter are tax deductible expenses. It will help reduce your taxable income while keeping those paychecks in the family. Keep in mind that payments must be legitimate. The IRS will find it hard to believe that your 16 year-old should be paid at the same rate as you, the owner. The tasks and responsibilities must be reasonable for someone of his or her age, experience and skills. Common tasks such as filing, typing, cleaning, or maintenance are all reasonable responsibilities.
Spend more time with your child
When children hit the teenage years, they become more independent and increasingly are seeking to do things on their own. But if you son or daughter is interested in your business or working with you for money, it may be a golden opportunity to spend more time with them before they head off for college. As someone who has one child in college now with a second one entering this fall, I can see that time together is fleeting.
Employing your own child offers a number of advantages but don’t do it only for the tax deductions. Keep good records and pay you child as if they are any other regular employee. That means giving him or her a regular paycheck and keeping good records of the work performed. You don’t want the IRS to come back to you to question whether these are legitimate payments.
Have more questions about how you might hire your son or daughter? Give us a call. We’re here to help.
Lyman H. Jackson
Financial Planning Solutions, LLC (FPS) is a Registered Investment Advisor. FPS provides this blog for informational and educational purposes only. Nothing in this blog should be considered investment, tax, or legal advice. FPS only renders personalized advice to each client after entering into an advisory relationship. Information herein includes opinions and forward-looking statements that may not come to pass. Information is derived from sources believed to be reliable. Information is at a point in time and subject to change without notice. Such information may not be independently verified by FPS. Please see important disclosures link at the bottom of this page.