HIRING YOUR CHILD IS GOOD BUSINESS

My son has been playing baseball since kindergarten – thirteen years now. Anyone with children active in organized extracurricular activities knows the expense can be daunting. In our case, its $300 for a bat (that may or may not pop), batting lessons, pitching lessons, catching lessons, batting cages, new batting gloves, new mitts, new uniforms and practice clothing not to mention league fees, tournament fees, field reservation fees, travel costs…..and the list goes on and on. Now, I don’t begrudge my son these things as long as he shows a serious passion (and a reasonable talent) for the sport. But early on I discovered, as a small business owner, that it was possible to “deduct “his baseball expenses. Don’t get ahead of me on this; there is a legitimate and rationale way of doing this. Please don’t go trying this yourself without seeking advice and getting into all sorts of trouble with the IRS.

My strategy with my son is a win/win for both of us. He gets the funds he needs to buy the equipment and supplies he wants while I get to shift my income legally to a lower and/or zero tax bracket, I have access to a loyal and familiar work force, all while teaching my son a valuable lesson in economics and money. The basics are simple – he performs legitimate work for my business and I pay him fair market wages. Implementation is more detailed and you will want to do it correctly to avoid or pass IRS scrutiny. But the results are fantastic.

Here are a few rules to follow:
1) Wages must be fair market wages. You may not overpay your child in order to deduct more.
2) The child must receive a periodic paycheck
3) The child MUST provide a legitimate and documentable business service
4) You should keep accurate paperwork regarding the hiring and paying of the child

The advantages are enormous!
1) Creating Income splitting opportunities that result in shifting income to zero or lower rate tax brackets
2) A quick and simple economics lesson for your child
3) The ability to contribute to your child’s retirement account (and watch the compounding grow)
4) Loyal and vested employee sources

Examples of the work my son performs are many. He cleans the office, empties the trash, shreds old files, files, does mailings, inputs data into Quickbooks, reconciles bank statements, organizes tax records into subject matter and runs the tape on them to prepare for tax preparation. He runs errands like the post office, deliveries, and getting the company car washed. And for these tasks he gets paid a fair market rate that may also be billable.

If you are self-employed you need to seriously consider a strategy utilizing your children’s participation. Remember the devil is in the details. Feel free to contact my office at www.SusanJamesandAssociates.com to set up a consultation with my office on creating a great strategy to utilize your children and the detailed, step by step paperwork. Just click the link on my blogroll and send me an email.

Tags: home business, small business, teens business